Hearing Starts on Utility Bond Default

TUCSON, Ariz. — A pretrial hearing Monday in the Washington Public Power Supply System bond default case dealt with such matters as witness testimony by satellite, jury size and selection and juror notebooks.

But U.S. District Judge William D. Browning also said he will take up on Friday a defense motion asking him to order the plaintiffs to drop assertions of conspiracy or to delay the Sept. 7 trial at least 60 days.

The 1983 WPPSS default is the largest in municipal bond history, on $2.25 billion in bonds it sold to finance construction of two nuclear power plants in Washington state.

Plaintiffs include more than 24,000 bondholders who have filed proofs of claim and Chemical Bank of New York, the trustee representing bondholders.

The bondholders, suing as a class action, are alleging fraud, negligence and conspiracy, said attorney Paul Bernstein, chairman of a lawyers’ group representing the purchasers. They are seeking more than $1 billion in damages.

Chemical Bank is seeking $7 billion for the value of the bonds plus interest.

The case, which is expected to last at least a year, shapes up as being of epic proportions, reputedly one of the biggest securities cases ever.

Ten groups representing 50 defendants remain from 104 initially named that included the Power Supply System, various officers and 88 utilities that participated in construction of the abandoned power plants.

The federal Bonneville Power Administration and others, including bond and special counsel to WPPSS, engineers, bond underwriters, financial consultants and architects, also were named initially. But Browning has ruled that Bonneville cannot be sued, and last year underwriters reached a tentative agreement that would let them out for $92 million.

Junius Hoffman, acting as Browning’s settlement master, said Monday that settlements amounting to $100,570,000 have been approved by the judge to date, with others worth another $170 million pending.

The pretrial conference was to resume Tuesday.

Browning issued an order July 14 allowing the plaintiffs to pursue certain conspiracy allegations.