TWENTY-FIVE years ago this summer, prospects for a nuclear-powered Northwest imploded. In what was then the nation's largest municipal bond...
Twenty-five years ago this summer, prospects for a nuclear-powered Northwest imploded. In what was then the nation’s largest municipal bond default, the Washington Public Power Supply System told creditors it could not make payment on a $2.25 billion debt it incurred to build two large nuclear plants. Today, as we contemplate regional energy options, the Supply System’s abandoned projects still cast a shadow.
In the 1970s, the Supply System (the agency hated the sound of its acronym, WPPSS) had undertaken to build five nuclear plants. A small public agency in Richland, next to the Hanford Reservation, the Supply System began the that decade with only a few dozen employees, although its members came to include major utilities such as Seattle City Light, Tacoma City Light and Snohomish PUD. A decade later, it was the largest public borrower in the nation, with about 14,000 construction workers building its plants.
Like most nuclear projects, the Supply System’s plants took far longer than expected to build while cost estimates ballooned. Meanwhile, the 1970s energy crisis slowed electrical demand growth. The agency’s complicated financing added a troublesome twist to these nationwide nuclear woes. Its first three plants received financial backing from the Bonneville Power Administration. Projects 4 and 5, however, depended on contracts in which 88 participating public utilities around the region bought shares of the plants’ “project capability.” These contracts mandated the utilities to pay whether or not the plants produced electricity — “hell or high water” clauses, in financial vernacular.
The Supply System was approaching financial hell in the early 1980s. The disastrous brew of construction delays, cost overruns, public suspicion and declining demand put the agency in an untenable position. The plants, initially slated to cost about $4.5 billion, were estimated in 1981 at $23.9 billion. In 1982, bowing to the inevitable, the agency terminated Projects 4 and 5, the ones without Bonneville’s financial backing.
Now the participating utilities faced economic disaster. To pay bondholders would require huge leaps in electric rates. Customers were fuming. Some utilities looked to the courts to escape the “hell or high water.” When the Washington State Supreme Court ruled in June 1983 that utilities had lacked the authority to contract to buy “project capability,” default was unavoidable. It occurred in a legally choreographed series of moves in July and August.
Almost immediately, bondholders — some 80,000 of them — sued the Supply System, the 88 utilities and virtually everyone else associated with the terminated projects. They charged fraud and misrepresentation in the sale of bonds. The case that followed default was enormous, with hundreds of attorneys, thousands of motions and submissions, and perhaps 100 million pages of paper. Judge William Browning appointed a special master to craft out-of-court settlements. Trial proceedings opened in September 1988, but defendants continued to drop out via negotiations. The trial ended anticlimactically before Christmas.
A chastened Supply System, operating one nuclear plant on the Hanford nuclear reservation, began a metamorphosis. Some changes were cosmetic. The agency shed its old name, becoming Energy Northwest; its nuclear plant is now the Columbia Generating Station. More significantly, Energy Northwest has invested in wind and solar energy.
Yet if Energy Northwest is reformed, the Supply System’s failures still hang over the region. Bonneville ratepayers get the energy from Columbia Generating Station but must pay bondholders for that reactor and two projects the Supply System terminated in 1994. Approximately 15 percent of a residential ratepayer’s electric bill still goes for principal and interest on the three plants.
For better or worse, WPPSS’ failures have left the Northwest with distaste for the nuclear option today. Vic Parrish, Energy Northwest’s CEO, believes new nuclear projects here “would fail” because of political reasons. John Harrison, spokesman for the Northwest Power and Conservation Council, says resentment at the projects’ lingering costs breeds anti-nuclear sentiment. Although development advocates in the Tri-Cities have pushed a plan for an advanced reactor design on the Hanford Nuclear site, opposition to licensing would surely be fierce.
The Supply System’s 1983 fiasco contains some of the elements of today’s unsettled financial markets. The agency assured buyers its bonds were low-risk investments. Wall Street paid little attention to the massive projects themselves or to the disconnect between Bonneville’s faulty projections of soaring demand and the region’s actual experience. The call today is for financial transparency, so buyers and sellers can evaluate potential risks and rewards clearly. Supply System bond marketing was a study in opacity.
Whether they applaud or decry it, Northwesterners are likely to attribute the region’s nuclear aversion to its environmentalist traditions. True, as far as it goes, but the sorry experience of the Supply System’s rendezvous with a false destiny should remind us nuclear energy a quarter-century ago spectacularly failed the tests of economic principles and hardheaded business practice.
Daniel Pope is professor of history at the University of Oregon and the author of “Nuclear Implosions: The Rise and Fall of the Washington Public Power Supply System” (Cambridge University Press, 2008).