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Utility Officials Acted In Public Interest, Says Attorney

September 15, 1988

TUCSON, Ariz. (AP) _ Board members at the Washington Public Power Supply System were part-time public servants who had nothing to gain by misleading investors who bought bonds in two nuclear power plants, an attorney said Thursday.

The board members also relied on experts for advice, Al Malanca told jurors in the WPPSS fraud trial.

″None of my utilities - officials of my utilities - had any personal gain,″ said Malanca, who represents 12 of the 16 public utilities that are defendants. ″There was no way they were going to get one cent.″

Malanca opened the defendants’ case in the trial over default on $2.25 billion in bonds by disputing plaintiff’s arguments that utility members of the WPPSS board controlled the supply system and plotted to defraud bond buyers.

Nineteen defendants, including two engineering firms and a financial adviser to WPPSS, are accused of making misrepresentations and withholding crucial information from investors who bought bonds to finance construction of WPPSS plants Nos. 4 and 5.

WPPSS itself and numerous other defendants have settled with the plaintiffs, who include more than 24,000 bond buyers.

The case resulted from the 1983 default by WPPSS on the $2.25 billion in bonds. It was the biggest default in the history of the municipal bond market.

The trial, which began last week, was moved to Tucson’s federal court from Seattle due to pretrial publicity.

Malanca told jurors that the plaintiffs would have them believe the 16 utility defendants had the power to control federal and state agencies, and were able to induce major engineering and financial firms to knowingly make false claims on official bond statements.

He said, however, that the utilities were relatively small, and were far down on the pecking order among the energy powers in the Northwest. The federal Bonneville Power Administration, he said, dominated the region.

While WPPSS in the 1970s, with five nuclear plants under construction, was also a major player in the energy scene, the utility officials who directed it were part-time participants, Malanca said.

He said they considered their appointments to the board a matter of civic duty, went to meetings only periodically, hired the best experts they could find, and generally followed directions of those experts and WPPSS.

The supply system staff, he said, had more power in directing WPPSS and board members were not even to speak to the media as representatives of WPPSS.

He stressed that public utility officials are not paid, receiving only per diem allowances for their work.

Looking back, Malanca told how the utilities had agreed to build plants Nos. 4 and 5 - though the plants were terminated in 1982 because the electricity they would have generated wasn’t needed.

Dozens of small Northwest utilities in 1976 were sent a letter from Bonneville, he recounted, warning them that the federal power marketing could not guarantee power to them past 1983.

BPA, then headed by Interior Secretary Donald Hodel, urged the utilities to sign up with WPPSS for the 4-5 projects, said Malanca.

Construction was started on the plants in 1977, and 14 bond issues were floated for their construction.

Malanca also defended the official statements WPPSS put out on each bond issue.

He said that while there was a great deal of information available on which to judge WPPSS and the bonds it issued, individual investors seldom read the official statements.

Instead, he said, they relied on bond underwriters and their salesmen.

Underwriters paid $92 million to get out of the lawsuit, which originally included more than 100 defendants.

Total settlements paid by settling parties amount to nearly $360 million, plus another $96 million in contested insurance money.

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