These rainy green islands near the Canadian border were once home to pirates and smugglers, and to a farmer named Lyman Cutler who shot a pig and touched off a border war with the British. There is still a certain iconoclasm afoot -- a provocative tradition that continues most visibly in the person of Leon Fonnesbeck, a retired lawyer and sometime playwright who led a pint-sized public utility against a giant nuclear consortium.

In the fall of 1980, the Washington Public Power Supply System was riding toward disaster without any help from Fonnesbeck. The costs of five Whoops nuclear plants were climbing like the ridgelines on Mount Rainier. Ratepayers were mad as hornets. Cartoonists had appointed Laurel and Hardy to the management team.

But for San Juan Islanders, Fonnesbeck arrived in the nick of time. The islands' electric company, Orcas Power and Light Co., had put itself at risk by agreeing to share the cost of two nuclear reactors known as Projects 4 and 5 whether they produced power or not. Two years later, when the partially completed reactors were scuttled, never to generate a watt, a formidable array of Whoops officials, financiers and political patrons said a deal was a deal -- i.e., pay up. Opalco had 5,300 customers. The bill including interest came to $45 million, due over 30 years.

"The idea of paying all that money for nothing had an element of unreality about it," Fonnesbeck said one day last spring.

Three weeks after the Whoops plants were scrapped, Fonnesbeck went to work in earnest, allied with a newly militant majority on the seven-member Opalco board. In his camp: John Goodrich, a retired Boeing engineer, Charles W. (Bill) Worman, the former president of a prefab building company, and Roy Franklin, the pilot and founder of San Juan Airlines who had converted to Fonnesbeck's view after some prickly exchanges.

When push came to shove in February 1982, the tiny power company's board passed a resolution instructing its lawyer to "follow his nose" and get Opalco off the hook, making it the first of the Northwest's utilities to repudiate publicly a share of the $2.25 billion debt.

Soon Orcas Power and Light, best known until then as the only utility to hold annual meetings on a ferry boat, emerged as the catalyst of a rebellion that swept across the territory. "It was like the Boston Tea Party," Opalco's lawyer, Edward B. O'Connor, recalled. Greeting a special conference in April 1982, then-president Goodrich said, "Welcome to Orcas Island, the seat of sedition."

Those were feverish times. Fearing that any further effort to boost rates would backfire, reducing electric consumption and revenues, the utility took the unprecedented step of filing for bankruptcy in December 1982. As Bill Worman put it in a quote reprinted last year in the New Yorker magazine under the heading Block That Metaphor!, in bankruptcy Opalco had found itself a "frying pan" that might "serve as a good umbrella."

To know how a little co-op obtained such a versatile item is to appreciate the course of events that led an entire region into a nuclear fiasco, and the local sense of justice and expediency that rationalized the way out. Before turmoil flowed in through the power lines, life had a decidedly more innocent flavor in the San Juans. People were more detached from mainland complexity. Frying pans were frying pans and almost no one had heard of Whoops. People on the World of a Ship --

Throughout the San Juan Islands, the sea insinuates itself in long arms and placid coves. Northern coastal weather suspends the land in fog one moment, washes it with sun the next. There are a dozen main islands and more than 150 others, many mere dollops strewn about like geologic apostrophes. Some are highly prized, but Dinner Island is said have gotten its name when its owner traded title to the land for a meal.

The islands' residents are an eclectic collection of fishermen, weavers, pilots, sailors, biologists, novelists, ex-professors, tidal wave experts, trust-fund dropouts, draft-dodgers, wealthy industrialists and specialists in out-of-body travel. In "The Roaring Land," author Archie Binns observed that the islanders have "more convictions and are better drinking en." Said Binns: "They stand out more sharply like people on the small world of a ship. They understand their own problems and face them more realistically."

Binns was writing in 1942, but he could have been describing Leon Fonnesbeck, a pink-cheeked, white-haired man with tufted white eyebrows curling over rimless glasses. Fonnesbeck worked as a personal-injury trial lawyer in San Francisco before migrating north to the San Juans, where he planned to retire on Shaw Island. Shaw is home to 150 people, including two orders of nuns who do stand out more sharply in their habits, offloading cars and running the winch at the ferry dock like the heirs of Charon.

Fonnesbeck has a pragmatic streak that proved essential in escaping Whoops. Not one to dwell on formalities, he's been known to shorten his name to Beck when making dinner reservations because it is easier to spell. He spends his time tending a garden, repairing clocks, practicing the violin and writing plays with large casts, including one about the adventures of Michael O'Paleglow, who discovers a secret way to make electricity. Fonnesbeck became a protagonist in the drama of Whoops in a fashion that seems peculiar to the homespun nature of local government. He stood for election to represent Shaw on the board of Opalco because it had become apparent to him that if he couldn't be bothered, neither could anybody else. Then They Said, 'Fellas, You're in Luck'

Orcas Power and Light was organized by islanders in 1937 under the federal Rural Electrification Administration, a New Deal agency created when one U.S. farm in 10 had electricity. The islands were wired up to the regional power grid in 1952, and since then the federal Bonneville Power Administration has furnished virtually all of the islands' electricity via a four-mile armor-plated cable beneath the whales and fishing boats in Rosario Strait. Dirt-cheap power from Bonneville heats the soup at Dottie's A-1 Diner, churns the Jacuzzi at the Rosario Resort, highlights the crucifix at the Eastsound Episcopal Church and runs the machine that makes the electronic implants used to track salmon.

The system is a precarious one, vulnerable to falling trees and boats dragging anchors over underwater cables. Island blackouts are of perennial interest. A crow shorted out the lights on Shaw and Orcas for three hours, and a picture of the bird's frazzled corpse appeared in the Opalco Beacon newsletter. When blackouts are scheduled for routine maintenance work the co-op alerts owners of word processors, such as Richard Bach, author of "Jonathan Livingston Seagull."

As a nonprofit public utility, Opalco is one of BPA's "preference" customers. It has first dibs on the power from some 30 federal dams and power plants. Private utilities selling power for profit and industrial customers such as aluminum companies (whose profits depend on a big supply of cheap hydro power) come second.

But in the spring of 1976 there was panic in the air, whipped up by Bonneville. Its charts seemed to say that in seven years the sky would fall in and there would not be enough power to maintain economic growth. For the board members of Opalco, the forecasts promised the worst: peole flicking their light switches and having nothing happen.

Roy Franklin, a trim, easygoing man with a knack for yarns, had been on the Opalco board since 1958. He was a pilot. When he settled in the islands after World War II, he founded Island Sky Ferries. (He changed the name to San Juan Airlines after a brawl with some smart alecks who wondered if Franklin and his fellow aviators were homosexuals.) At night Franklin dynamited stumps from the cow pasture serving as his airstrip. By day he hopped about the islands. Sometimes he flew pregnant women to the hospital in Bellingham, and buzzed back over the house of the anxious father to toss a roll of toilet paper from the cockpit -- blue for a boy, pink for a girl. He worked hard. Once in a while the job caught up with him at dinner. He would lay his head down on the table and sleep.

In April 1976 Franklin received a letter from Bonneville advising him of a meeting that month at the Sheraton Hotel in Portland. "We consider this to be one of the most important meetings ever held between BPA and its preference customers," it said. "To further emphasize the severity of the problems we all face we have enclosed a copy of our March 1976 Power Outlook. With critical water conditions, deficits are forecast for every year." Similar letters had gone out to public utilities all over the Northwest.

It was not easy for an outfit like Orcas Power and Light to second-guess the experts. The power outlook was not pretty. It had been compiled with contributions by the region's utilities, including Opalco, but it bore Bonneville's imprimatur and, Franklin remembers, it had arrived in a Bonneville envelope. Opalco's own forecasts jibed with the regional consensus that electric demand would grow. In 1975 alone, the amount of electricity Opalco sold had jumped 14 percent.

Bonneville's administrator then, now Energy Secretary Donald P. Hodel, had done much to create the atmosphere of crisis. He mailed Opalco a letter that said: "Only by utilities signing these agreements can these generation projects be constructed on schedule required to meet the loads." There was a sense of urgency to the All Preference Customers meeting in April 1976, as Franklin remembers it.

"They wanted to know what our plans were," he recalled. "If we didn't show that we were taking an active part in covering our shortage, we might lose our preference standing. They let us hang on the hook for a while while we sweated. We looked at each other and said, 'What the hell are we gonna do?'

"Then they said, 'Fellas, you're in luck, we've got these nuclear power plants . . . .' "

Franklin knew little about nuclear power. He had read stories about submarines circling the globe nonstop, but he had no occasion to see the February 1975 issue of Technology Review, with its minatory report about cost trends in nuclear power. Instead, the region's political leaders beat the drum of impending shortages, curtailments, blackouts, people freezing in the dark.

Hodel's BPA estimated the cost of Whoops 4 and 5 at $2.4 billion at that April meeting. A regional council of public power companies insisted that little utilities had a "responsibility to the region" to participate. A week later a contract from Whoops arrived in the mail at Opalco. The co-op had 90 days to act.

One provision in the 70-page contract, clause 6d, was as important to Wall Street as the commandments Moses brought down rom Mount Sinai. It stated that Opalco would pay for the plants whether they worked or not.

George McKush, the snowy-haired lawyer who had incorporated Opalco in 1937 and served as the utility's attorney for more than 40 years, reviewed the contract and the so-called hell-or-high water provision. "I told them it was a tough contract," he recalled. "You had to read it two or three times to get what they were driving at. The board members mostly took manager Bob Scharnhorst's word for the meat of it."

The board of Orcas Power and Light was uneasy with the arrangement but at a loss for alternatives, Franklin remembers. While they brooded, a helicopter appeared. Franklin forgot the names of the passengers a long time ago, but not the timing and drama of the visit -- Bonneville emissaries dropping in by chopper to jolly Opalco into a nuclear future. The power could be sold as surplus if Opalco didn't need it immediately, they said. Whoops had letters from the Los Angeles Department of Water and Power and others expressing an interest in buying electricity. The implication was, How could Opalco lose? So in July 1976 Opalco signed up for a share of Projects 4 and 5.

"They wanted everybody to sign that sucker," Franklin recalled ruefully. $ 'We Don't Have Anything to Do With These Nukes, Do We?'

The late senator Henry M. Jackson (D-Wash.) was a friend of the San Juan Islands ever since the 1946 election. Against a Republican trend, a large block of island votes carried the day for Jackson. He liked to joke that the islands were so out of touch that the people hadn't heard that Republicans were fashionable. It was the same with Whoops, in many ways. News filtered to the islands like reports of a distant war, even though Opalco's manager, Bob Scharnhorst, served as an alternate on the committee of participants set up to monitor the progress of the plants. Board member Bill Worman wasn't even aware of Opalco's stake in the plants until he'd been sitting for the better part of a year. So it was throughout the Northwest. Until 1979, when Bonneville was forced to raise its rates to cover Whoops' costs, the public for the most part was uninterested.

Worman is a meticulous man, a stickler for perfection. He sits at meetings nervously clicking a pen. He moved to Orcas Island in the early 1970s, built a house on a cove favored by a great blue heron, and immersed himself in restoring Fairchild 22 airplanes. His business background was extensive. He founded a portable building company, was later forced into bankruptcy, and emerged to guide another firm onto the American Stock Exchange. In the summer of 1980 he had read and heard enough about Whoops to put furrows in his brow. He went to see Scharnhorst with a question.

"We don't have anything to do with these nukes, do we?"

There was a long pause. Then Scharnhorst replied, "Yes, we do."

"How many?" he said.


"At the time I thought, 'They must know what they're doing,' " Worman recalled not long ago. "Of course I was completely wrong. I didn't know how wrong I could be."

Still, who could be sure? At the time, Sterling Munro, who had worked for two decades as Sen. Jackson's administrative assistant, had succeeded Hodel as BPA administrator. In 1980 Munro said the Northwest was in for "10 years of the damnedest shortages this region has ever seen." After one Munro speech, Worman was back in the fold, defending the projects on the grounds that the power was needed.

Leon Fonnesbeck turned him around.

"Leon was the spark plug," Worman recalled.

"Leon brought a new-wave California rebelliousness," said Cyrus Noe, the publisher of Clearing Up, a Whoops litigation newsletter.

"I came as a stranger without a utility background," said Fonnesbeck, sitting in overalls in back of his house last summer. "You could see all the problems. It was like an impending storm. It took the board a long time to become convinced there was a problem. They kept saying, 'We need the power!' But power was running out of their ears."

Fonnesbeck got copies of the participants agreement and Bond Resolution 890, and set about figuring Opalco's position. Worman had tried the same tactic himself, with less luck. "One day I said, 'Man, I'm going to sit up tonight and try and understand this. After a couple of nights, I thought, 'Oh the hell with it.' "

Of the five plants, three were backed by Bonneville; most of the region's utilities, including Opalco, had committed to buy the power. Opalco and 87 other utilities had assumed the direct risk of building Projects 4 and 5 after being persuaded that the plants would pay for themselves once they started producing power. When Whoops terminated the projects in January 1982, it was clear that Projects 4 and 5 would produce nothing but bad feelings. In oil parlance, they were dry holes, and Opalco bore the dry-hole risk.

At board meetings, Fonnesbeck stood with the growing crowd of ratepayers mad enough to burn utility commissioners in effigy. Environmental guerrillas had been waging a fight against Whoops for six years, but now an army was mobilizing behind them, incensed that Whoops, Bonneville, contractors, the nuclear industry, Chemical Bank and Wall Street should try to fob off a nuclear debacle on them.

Franklin found himself in the other camp with those who believed that the region's credit and good name, not to mention "the sanctity of contracts," were at stake if the ratepayers spurned debts incurred in good faith.

"I was probably as deeply steeped in the old tradition as anybody," Franklin said. "We had some new members on the board, but I thought, a deal's a deal. We had gambled, we thought it would work."

Standing before a wood stove and a portrait of a Fairchild painted by famed aviation writer Ernest K. Gann (also an island resident and former pilot for San Juan Airlines), Franklin recounted his conversations with Fonnesbeck.

"I said, 'We're caught with it.'

"Leon would say, 'Wait a minute! We've been sold a bill of goods. The little co-ops have been taken in. The aluminum companies aren't taking any risk. They came and got us by waving the flag. The trouble with you, Franklin, is that you've lived so long in an isolated area you can't see the big picture.'

"And I'd say, 'What the hell are we talking about? Jesus Christ, Fonnesbeck, you're with a bunch of buddies on a rock, you've only got one lifeboat -- you're going to slip out in the middle of the night? You dirty bird!'

" 'Christ, Franklin, get off your damn rock and see what the world is about.' "

Slowly, Franklin came off his rock. "I hated to admit it," he said, "but Leon could see all these things that were happening. I disliked him with a passion to begin with, but there are large forces in the world -- Wall Street, Chemical Bank -- and hey, we're not gonna be one of the fall guys. It didn't take any kind of mathematician to figure how 5,300 people could dig up $45 million in the next 30 years."

Fonnesbeck drafted letters asking to rescind the agreements. He schemed legal defenses. "Whoops hadn't done what they said they would do," Fonnesbeck said. "They said a deal was a deal. What do you mean a deal's a deal? If you get married at gunpoint, it's not a deal. Then they would fall back on clause 6d. It doesn't even mention the word termination. Whoops was trying to twist the clause into a position that it didn't fit."

And so, the Opalco board voted to commence the legal maneuvering that today has engulfed the Pacific Northwest in the largest securities fraud suit in the country. And the utility bulletin, Opalco Beacon, began to refer to the "alleged debt." A Meeting on the Water

No one is freezing in the dark on the San Juan Islands today. The all-black postcard captioned Orcas Island at Night is just a joke about the dearth of things to do after dark. The main legacy of Whoops may be the smell of wood smoke on chilly evenings. It is hard to find a house without a wood stove. Even the stove models for sale in the village of Olga seem of a piece with islander character: Resolute, Defiant, Intrepid and Vigilant. "You should add Pleasure-Loving and Inattentive," said Marcie Lund, serving pie at the Olga Cafe.

Ironically, Opalco is now promoting consumption, hoping to build demand to spread costs and keep rates down. The staff brainstormed a new bumper sticker: Save a Tree, Heat Electrically.

And Leon Fonnesbeck still inveighs against the powers behind the power. Last spring he addressed the crowd of ratepayers assembled on the ferry Kaleetan for Opalco's 47th annual meeting. The lectern had been taped to the main cabin deck to prevent it from rolling away in a rough sea. Fonnesbeck stood up and gave an impassioned speech, tying the utilities' plight in with aluminum companies, Wall Street brokerages, the 1973 oil embargo and Mideast policy. Prospects looked grim for Opalco, he said. The utility dispensed with the door prizes it used to pass out to lure members to the annual meeting. "We're fighting for our life," Fonnesbeck cried. "Let's learn some lessons. Never again should business be conducted like Whoops."

He sat down, to thunderous applause.NEXT: Wall Street and the paper world