237 



ENCLOSURE VII ENCLOSURE VII 



WPPSS 



BACKGROUND 



Created In 1957, the Washington Public Power Supply System 

 (WPPSS) was a municipal corporation and a joint operating agency of 

 the state of Washington. It consisted of 19 operating public 

 utility districts and four cities In the state of Washington. 

 WPPSS had the authority, among other things, to acquire, construct, 

 and operate plants and facilities for the generation and 

 transmission of electric power and energy. In 1969, WPPSS agreed 

 to construct three nuclear-powered electric generating stations, 

 and the Bonneville Power Administration (BPA) agreed to participate 

 in financing these facilities (plants 1, 2, and 3). 



In 1972, BPA's ability to assist in the financing of 

 additional generating units was halted because of (1) rising 

 construction costs for power plants 1, 2, 'and 3 and (2) a change in 

 U.S. Treasury regulations. In spite of BPA's lack of financial 

 participation, WPPSS decided to build two additional nuclear plants 

 (plants 4 and 5) that would be financially backed by participating 

 utilities (participants). Between 1976 and 1981, WPPSS continued 

 to construct plants 4 and 5. Construction delays and dreunatic 

 cost increases at plants 4 and 5 led eventually to WPPSS' decision, 

 in 1982, to terminate the construction of both plants because the 

 financial market was not able to absorb the bond financing. 

 However, by this time, WPPSS had sold $2.25 billion in bonds that 

 required the participants to pay off the bonds in the amount of 

 their proportionate share, regardless of whether the plants were 

 ever completed or operated. A number of participants and 

 ratepayers filed lawsuits contesting the validity of these 

 obligations. 



GAO WORK 



We issued two reports in 1982 on BPA's involvement in WPPSS' 

 nuclear plant projects. One report. Issued on July 2, reviewed the 

 potential impacts from default or successful legal challenge by 

 participants in the financing of plants 4 and 5 on the Pacific 

 Northwest's ability to raise funds for public works and other 

 programs. We found that a default on the bond obligations by the 

 participants would probably have adversely affected the economy of 

 the region and its ability to raise capital in the bond market. 

 Also, participants that defaulted could expect to pay higher 

 interest rates for future bond sales. 



Our other 1982 report, issued on July 30, examined, eunong 

 other things, the role of BPA in the development and termination of 

 plants 4 and 5. We found that BPA had (1) helped small regional 

 utilities forecast the demand for electricity, (2) endorsed the 



21 GA0/RCED-93-133R, GAO Products on Bonneville Power Adninistratiao 



