Chemical Bank v. Washington Public Power Supply System

• Court: Washington Supreme Court
• Writing for the Court: BRACHTENBACH; WILLIAM H. WILLIAMS, C.J., ROSELLINI, DIMMICK and PEARSON, JJ., and MORGAN; DORE; UTTER; DOLLIVER
• Citation: Chemical Bank v. Washington Public Power Supply System, 666 P.2d 329, 99 Wn.2d 772 (Wash. 1983)
• Decision Date: 15 June 1983
• Docket Number: No. 49186-1
• Parties: , 53 P.U.R.4th 1 CHEMICAL BANK, a New York corporation, Respondent, v. WASHINGTON PUBLIC POWER SUPPLY SYSTEM, a Washington municipal corporation and joint operating agency, Respondent, and Columbia Rural Electric Association, Inc., an Oregon corporation, et al., Petitioners.

Page 772

99 Wn.2d 772

666 P.2d 329, 53 P.U.R.4th 1

CHEMICAL BANK, a New York corporation, Respondent, v. WASHINGTON PUBLIC POWER SUPPLY SYSTEM, a Washington municipal corporation and joint operating agency, Respondent and Columbia Rural Electric Association, Inc., an Oregon corporation, et al., Petitioners.

No. 49186-1.

Supreme Court of Washington En Banc.

June 15, 1983.

Helsell, Fetterman, Martin, Todd & Hokanson by Richard S. White, David F. Jurca, and Linda J. Cochran, Seattle, Wash., for petitioner Columbia Rural Elec. Assn.

Stimson Bullitt, Gordon W. Wilcox, and John D. Lowery of Riddell, Williams, Bullitt & Walkinshaw, Seattle, Wash., for 21 petitioners.

Gordon, Thomas, Honeywell, Malanca, Peterson & O'Hern by Albert R. Malanca, Kenneth G. Kieffer, Donald S. Cohen, and John C. Guadnola, Tacoma, Wash., for petitioners Washington Public Utilities Group.

Milne, Lemargie & Fitterer by Robert Milne, Ephrata, Wash., Davis, Arneil, Dorsey, Kight & Parlette by David J. Dorsey, Wenatchee, Wash., and Williams, Novack & Hansen by Jeffrey E. Pratt, Everett, Wash., for petitioners PUD's Nos. 1 and 2.

George, Hull & Porter, P.S. by John D. Reagh and Richard A. Pitt, Seattle, Wash., for petitioners Cities of Canby, Cascade Locks, and Drain.

Jones, Grey & Bayley, P.S. by Hugo E. Oswald, Jr., Margaret E. Pageler, and Charles H. Thulin, Seattle, Wash., for petitioner City of Ellensburg.

Detels, Draper, Madden & McGee by Martin P. Detels and Bonita L. Olson, Seattle, Wash., Rankin, McMurry, VavRosky & Doherty by Garry P. McMurry, Portland, Or., and Haugeberg & Rueter by David Haugeberg, McMinnville, Or., for petitioners Cities of McMinnville and Springfield.

Smith & Rosellini by Jacob L. Smith, Lynden, Wash., for petitioner City of Sumas.

Lane, Powell, Moss & Miller, John R. Tomlinson, Larry S. Gangnes, and H. Peter Sorg, Jr., Seattle, Wash. (Schwabe, Williamson, Wyatt, Moore & Roberts, Rockne Gill, J. Laurence Cable, Donald A. Haagensen, and Bernard Ryan, Portland, Or., Heisler & Heisler and Stanley D. Heisler, The Dalles, Or., and George P. Winslow, Jr., Tillamook, Or., of counsel), for petitioners Oregon PUD's.

Frome & Goulding and Ted C. Frome, Afton, Wyo., for petitioner Lower Valley Power and Light, Inc.

Velikanje, Moore & Shore, Inc., P.S. by Scott L. Schmidtman, Yakima, Wash., for petitioners Borgens, et al.

William H. Rodgers, Jr., Peter J. Eglick, and Michael W. Gendler, Seattle, Wash., for petitioners Clark County PUD Owners' Ass'n, et al.

Betts, Patterson & Mines, P.S. by Michael Mines, Seattle, Wash. (Cravath, Swaine & Moore, New York City, of counsel), for respondent Chemical Bank.

Culp, Dwyer, Guterson & Grader, Richard C. Yarmuth, Michele Coad, Earle J. Hereford, Jr., Edwards & Barbieri, and Malcolm L. Edwards, Seattle, Wash., for respondent Washington Public Power Supply System.

Roberts & Shefelman, George M. Mack, and Joni H. Ostergaard, Seattle, Wash. (James M. Taylor, City Atty., Seattle, Wash., of counsel), for respondent City of Richland.

Forrest W. Walls, Douglas H. Rosenberg, and William M. Doyle, Seattle, Wash., on behalf of Washington Public Ports Association, amici curiae for respondents.

BRACHTENBACH, Justice.

The Washington Public Power Supply System (WPPSS) issued revenue bonds to obtain funds to construct two nuclear generating plants known as WNP-4 and WNP-5. Bonds in the face amount of approximately $2.25 billion have been issued; repayment with interest will cost approximately $7.2 billion. Chemical Bank is the trustee for the bondholders.

Construction of the two plants was undertaken. On January 22, 1982 WPPSS terminated construction of both plants. At that time WNP-4 was approximately 24 percent completed and WNP-5 approximately 16 percent completed. Costs to date had almost reached the original estimated total cost for complete construction of both plants. WPPSS alleges that termination was necessary due to its inability to obtain adequate financing to complete the projects.

Chemical Bank brought a declaratory judgment action against WPPSS and the participants (defined hereafter) seeking a determination that the participants owe to WPPSS sufficient funds to pay the bonds, with interest. In general WPPSS has responded to the suit by substantially agreeing with Chemical Bank as to the rights and obligations of the various parties. Most of the participants, however, have interposed numerous defenses to any payment obligation.

The pleadings framed numerous issues, some of which have been determined by the trial court on motions for partial summary judgment. We granted discretionary review on limited issues on which the trial court granted summary judgment in favor of the bond trustee and stayed further trial on other issues until this appeal was decided. On some of those issues we reverse.

To understand the complex issues, a recital of facts is necessary. WPPSS is a "joint operating agency" established in 1957 under RCW 43.52. It is a municipal corporation. RCW 43.52.250. Its members are 19 public utility districts and four cities, Ellensburg, Richland, Seattle and Tacoma. It has authority to acquire, build, operate and own power plants and systems for the generation and transmission of electricity. RCW 43.52.300. WPPSS also has authority to issue revenue bonds payable from the revenues of the utility properties operated by it. RCW 43.52.3411. It may not levy taxes or issue general obligation bonds. RCW 43.52.391.

In the early 1970's WPPSS started construction of three nuclear generating projects, WNP-1, WNP-2 and WNP-3. Those projects were developed in conjunction with a number of participating public utilities from several northwestern states, including Washington. In 1974 WPPSS decided to construct two additional plants, WNP-4 and WNP-5, financing of which is the subject of this litigation. WNP-4 is owned entirely by WPPSS; WNP-5 is owned 90 percent by WPPSS and 10 percent by Pacific Power & Light Company, a privately owned utility.

Besides WPPSS and Pacific Power & Light Company, there are 88 "Participants" in these two projects: 9 Washington cities, 19 Washington public utility districts, 1 Washington irrigation district, 7 Oregon cities, 4 Oregon peoples utility districts, 5 Idaho cities, and 43 rural electric cooperatives, of which 13 are in Washington. The remainder of the REC's are in Idaho, Montana, Nevada, Oregon and Wyoming. Each of the participants in WNP-4 and WNP-5 signed an identical 63-page "Participants' Agreement", dated July 14, 1976.

A 117-page "Bond Resolution" was adopted by WPPSS on February 23, 1977 providing a plan for the construction of both plants and providing for the issuance of revenue bonds.

Each Participants' Agreement provided that "[s]upply System hereby sells, and the Participant hereby purchases, its Participant's Share of Project Capability."

"Project Capability" is defined in section 1(v) of the agreement as:

the amounts of electric power and energy, if any, which the Projects are capable of generating at any particular time (including times when either or both of the Plants are not operable or operating or the operation thereof is suspended, interrupted, interfered with, reduced or curtailed, in each case in whole or in part for any reason whatsoever), less Project station use and losses.

The Participants' Agreement requires each participant to pay monthly its proportionate share of a "Billing Statement" issued annually by WPPSS and based upon an "Annual Budget." The "Annual Budget" is to be adopted by WPPSS commencing with the "Date of Continuous Operation" (defined in effect as when the plant is ready to be operated and the output scheduled on a commercial basis) OR the date 1 year after the termination of a project. The Bond Resolution in turn similarly requires WPPSS to collect and set aside funds sufficient to make payments on the bonds. Termination thus established a trigger date for various payments, and gave rise to this lawsuit.

The Participants' Agreement purports to require payment to WPPSS whether or not the projects are ever completed, operable or operating. Specifically, section 6(d) provides:

The Participant shall make the payments to be made to Supply System under this Agreement whether or not any of the Projects are completed, operable or operating and notwithstanding the suspension, interruption, interference, reduction or curtailment of the output of either Project for any reason whatsoever in whole or in part. Such payments shall not be subject to any reduction, whether by offset or otherwise, and shall not be conditioned upon the performance or nonperformance by Supply System or any other Participant or entity under this or any other agreement or instrument, the remedy for any nonperformance being limited to mandamus, specific performance or other legal or equitable remedy.

The Bond Resolution requires WPPSS to collect charges for electricity and capability, which are adequate to provide for payment of the revenue bonds "whether or not the generation or transmission of power ... is suspended, interrupted or reduced for any reason whatever ..."

Thus, if the agreements are valid, and subject to interpreting the contract, the participants collectively could pay approximately $7 billion for nuclear plants which will never generate any electricity. Ultimately the ratepaying consumers of the participants would pay for the nonexistent electricity.

The method of financing WNP-1, 2 and 3 differs from that involved in WNP-4 and 5. The Bonneville Power Administration, a federal agency, facilitated financing of the first three plants through complex "net-billing" agreements that allocated the risk of noncompletion to the federal agency. Springfield v. Washington Pub. Power Supply Sys., 564 F.Supp. 90 at 95 (D.Or.1983). Since Judge Redden concluded that net billing only requires the participants to pay for power as it is provided, Springfield, at 12, those projects apparently may be...