Judge Dismisses Suit by WPPSS Bondholders : Rules Washington Not Liable for $7.25 Billion

SEATTLE —  The state of Washington is not responsible for $7.25 billion in bonds and interest lost by investors after a public utility association canceled two nuclear power plants, a Superior Court judge ruled Thursday.

Judge Terrence Carroll dismissed the suit brought against the state by investors seeking the value of their bonds--$2.25 billion plus $5 billion in interest--purchased from the Washington Public Power Supply System.

Carroll said he “categorically rejects” any attempt to make the state responsible for bonds purchased from WPPSS, which is composed of 88 utilities.

“It is also somewhat incongruous to suggest that, if the participants (in WPPSS) aren’t responsible to the bondholders, that the state and its taxpayers are,” the judge added.

The bonds were sold by WPPSS to finance construction of two nuclear reactors that were terminated before completion in June, 1983, when the utilities admitted that they couldn’t pay the debts on the plants.

Negligence Claimed

The suit against the state was just one in a series filed by investors trying to recoup their losses. Other suits have named WPPSS, the 88 utilities that sponsored the plants, some of the nation’s largest investment firms and more than 150 retail brokers who actually sold the bonds.

The suit against the state contended that WPPSS is a state agency, that the state had control over the financing, construction and termination of the two projects and that the state had a “moral obligation” to pay.

In addition, the suit claimed that the state was negligent in certifying that the bonds complied with the Washington state constitution and that the supply system was financially stable.

The suit alleged that Washington officials permitted the issuance of the bonds in such a way as to mislead investors into thinking that the bonds were obligations of the state.

The state contended that WPPSS was a joint operating agency created by the state Legislature in the late 1950s as the construction arm of Washington public utilities and denied that it had any obligation to pay bondholders.

The state auditor’s certification of the bonds was never considered a “legal opinion attesting to the validity of the bonds,” the state said in its motion to dismiss.

Two other WPPSS nuclear projects have been mothballed until at least late 1987. The supply system’s fifth plant entered commercial operation last December.

The WPPSS National Bondholders Committee claims to directly represent about 12,000 investors who hold about half of the $2.25 billion worth of bonds sold. The committee filed suit on behalf of all investors.

The judge dismissed the suit after about one hour of oral arguments in his King County courtroom.

“I know the bond purchasers won’t be happy. They always thought the state had an obligation,” said Charles Webb III, the plaintiffs’ attorney. Webb said he did not know whether he would appeal.

Phillip Austin, attorney for the state, called the dismissal a “major decision showing that the state is not a legal obligator for the debts of the supply system.”