(4 of 5)
The Project 4 and 5 bonds did not have the same kind of underpinning as the other securities. A change in federal rules passed by Congress in 1973 made it impossible for BPA to back the 4 and 5 bonds. Instead, they were supported solely by so-called take-or-pay contracts with 88 utilities in Washington, Oregon, Idaho, Montana, Wyoming and Nevada that signed up to buy electricity from Whoops. These agreements, dubbed "hell or high water" deals, committed the utilities to pay for Projects 4 and 5, even if they never produced a kilowatt.
When the two plants were abandoned in early 1982, the people of the Northwest were enraged at the prospect of paying off the bonds through higher electric bills, with no hope of getting anything in return. Citizens' groups with such names as Irate Rate Payers and the Light Brigade sprang up and held town meetings to protest. Complained Mark Reis, executive director of a Seattle energy-conservation coalition: "They promised us power without cost, and they delivered cost without power." Some of the utilities tried to renege on their take-or-pay contracts with Whoops, and that raised the specter of default. New York City's Chemical Bank, trustee for the bondholders, took Whoops and the utilities to court. After 13 months of legal skirmishing, the Washington State Supreme Court decided against the bank and the bondholders. In a ruling that surprised legal experts, the court said that the public utilities did not have to abide by their contracts because they had no legal right to sign such agreements in the first place. Chemical Bank asked the court to reconsider the decision, but two weeks ago it refused, setting the stage for last week's default.
Stunned Whoops bondholders grumbled about "hometown referees" who were making investors all over the U.S. pay for mistakes made by officials in the Northwest. Recalling the famous New York Daily News front page describing President Gerald Ford's refusal to bail out a financially floundering New York City, one Manhattan bond trader growled, "If you could write a headline about the whole sorry affair, it would read, WASHINGTON STATE TO INVESTORS: DROP DEAD!" Critics point out that the Northwest has very low electric rates as a result of its cheap hydroelectric power. If the entire cost of all Whoops bonds were pushed into Northwestern electric bills, the rates would still be below the national average. Chemical Bank may ask the U.S. Supreme Court to overturn the Washington ruling and make the Northwestern utilities live up to their contracts.