No money, no easy answers for bondholders in WPPSS default
The teller at the counter was a bit flustered when Jonathan S. Krasney tried to redeem his Washington Public Power Supply System (WPPSS) bond coupon at Chemical Bank of New York's headquarters Tuesday.
''They are not being paid,'' she said. ''You know that. Are you with the press?''
No, Mr. Krasney assured her, he was an individual bondholder. But his point was very much for the media.
Krasney and a small group of WPPSS bondholders from New York and New Jersey staged a demonstration at Chemical Bank to publicize the continuing plight of 78 ,000 bondholders across the United States who collectively stand to lose $2.25 billion in the largest municipal bond default ever. On Jan. 2, WPPSS was scheduled to repay $94 million in interest to Chemical Bank. It did not, and bondholders will get no payments on their coupons.
Dozens of lawsuits, several reports, and a wagon-load of newspaper clippings have kept WPPSS in the public eye. But there remains a lot to do to untangle the knot created by plans for a nuclear power plant system that would have provided electricity to the Pacific Northwest. Of five plants on the drawing board, two have been scrapped, two face uncertain futures, and the one that will be completed will cost $3.2 billion instead of the projected $394 million.
''Quite honestly we are aghast,'' says Muriel Charles of South Orange, N.J. ''We bought the bonds in good faith.'' She and her husband, who is retired, had invested ''a sizable amount'' in WPPSS bonds.
Will it affect their retirement? ''Truthfully, yes,'' Mrs. Charles says. ''We will have to alter our way of living.''
The $2.25 billion in bonds issued for nuclear power plants No. 4 and 5, later canceled, were backed by 88 utilities in the Northwest. But last summer the Washington Supreme Court ruled that the utilities never had the authority to sign contracts to back the two projects. They were freed from their obligations on the bonds, and WPPSS then defaulted.
Everyone from Chemical Bank to the National WPPSS No. 4, 5 Bondholders Committee, which organized Tuesday's protest, seems to be seeking legal recourse. Suits against the power system, its directors, the utilities, engineers, and Wall Street investment firms charge the defendants with negligence, fraud, misrepresentation, and so on. The Securities and Exchange Commission is also investigating the WPPSS controversy.
And nearly everyone has an idea of how to resolve the issue. The protesters in New York want 100 cents on the dollar returned, and have figured out a formula to get that money back. Their plan would increase the electricity rates in the Northwest by $1.63 per month per user.
A three-member panel in the region, headed by Portland lawyer Charles Luce, has proposed a partial payback to bondholders at about 36 cents on the dollar. It also recommends the creation of a federal entity to settle the lawsuits, assume control of the supply system, and to finance and finish the remaining three power plants. The Luce commission, appointed by governors in Oregon and Washington, agrees that a surcharge should be placed on electric power rates in the region.
''The editorial comments (about the report) have been guardedly positive,'' Mr. Luce said in a telephone interview. ''People have said it is a good first step.''
Washington Gov. John Spellman (R) has endorsed the major proposals in the report, including the partial repayment of the bonds and the boosting of the region's power rates. But Luce reports that no specific action has been taken.
Though many involved in the system's problems would like to see the creation of a federal agency, there is little momentum in Congress now to do anything about WPPSS. One Northwest senator's aide says: ''I don't get the feeling there is much consensus on the issue.''