A:

The Washington Public Power Supply System (WPPSS) was formed in the 1950s to make certain that the Pacific Northwest had a constant source of electrical power. The Packwood Lake Dam was the first project undertaken by the WPPSS, and ran seven months past the completion date; this first project by WPPSS foreshadowed its future incompetence in public works.

The idea to use clean, cheap nuclear power became popular in the 1960s and WPPSS saw an opportunity to meet growing consumption demands in the Northwest. It planned a system of five nuclear power plants that would be financed by a public issue of bonds and repaid with sales from the plants. The bonds were issued, but the robust sales that WPPSS had intended never materialized.

The biggest problems were endemic cost overruns, sloppy management and outright idiocy. An example of WPPSS's problems involved a pipe hanger, essentially a bracket to hold pipes in place, that was redesigned and rebuilt no less than 17 times, costing more with each revision. Contractors, long accustomed to government efficiency, overcharged and under-delivered in almost every category. This caused safety inspectors to call for more stringent rules, which were implemented mid-construction by the Nuclear Regulatory Commission. As a result of the tougher regulations, much of what had been built needed to be torn down and redesigned.

At the beginning of the 1980s, only one of the five WPPSS plants was nearing completion. By this time, nuclear power had been reexamined and was found to not be as clean as was originally thought. Some cities boycotted nuclear power from the plants before the facilities were even up and running. The cost overruns reached the point where more than $24 billion would be required to complete the work, but recouping funds would be a tricky matter because of less-than-promising sales. Construction halted on all but the near-completed second plant; the first plant was once again being redesigned. WPPSS was forced to default on $2.25 billion worth of municipal bonds.

The second plant eventually went into operation in 1984, but it was a small comfort to investors. On Christmas Eve in 1988, a $753 million settlement was reached. The structure of the settlement meant that investors received between 10 and 40 cents per dollar invested ... Whoops indeed.

(For more on this topic, read The Basics of Municipal Bonds.)

This question was answered by Andrew Beattie.

RELATED FAQS
  1. What has been the trend for growth in nuclear power in the utilities sector?

    Explore the current state of the nuclear power industry, and learn the consensus of opinion regarding growth prospects for ... Read Answer >>
  2. What are the main substitutes for oil and gas energy?

    Read about some of the major substitute sources of energy that compete with fossil fuels -- oil, natural gas and coal -- ... Read Answer >>
  3. What do cities do with the funds generated from municipal bonds?

    Learn more about municipal bonds, including the various types of bonds issued and the purposes of municipal bond funds, such ... Read Answer >>
  4. Who or what is backing municipal bonds?

    Learn about the basics of municipal bonds, including the various revenue sources that are utilized to back or secure municipal ... Read Answer >>
  5. What is a triple tax-free municipal bond?

    At its core, a triple tax-free municipal bond is just like any corporate bond: it is a debt instrument, a loan given to a ... Read Answer >>
Related Articles
  1. Investing

    The Economic Reasons Behind Nuclear Power

    Despite the risks, investments in nuclear energy can pay off in the form of energy independence.
  2. Insights

    Companies Involved In A Nuclear Cleanup

    Learn about the specialized companies that are equipped to assist in a nuclear cleanup.
  3. Investing

    Top 3 Nuclear Stocks for 2017

    The energy sector in general – and uranium in particular – may be poised to take off this year.
  4. Insights

    Opinion: Get Ready for Donald Trump’s Electric Rates Shocker

    The obscure, but powerful, reasons you soon may be paying more for electricity.
  5. Financial Advisor

    Why You Should Invest In Municipal Bond ETFs

    These versatile instruments have become popular with investors in higher tax brackets and fill a specific niche in the wide selection of fixed-income offerings.
  6. Financial Advisor

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
  7. Financial Advisor

    How to Find the Best Bets in Muni Bonds

    Approach investing in municipal bonds the same as you would investing in stocks.
  8. Investing

    Consider These Municipal Bond ETFs

    Though relatively low-risk, there are still some factors to consider when taking the plunge into municipal bond ETFs.
  9. Investing

    Think Twice Before Buying Tax-Free Municipal Bonds

    Municipal bonds are relatively safe, tax-exempt securities--but they are not without drawbacks. Due diligence is required.
RELATED TERMS
  1. Whoops

    Slang for the Washington Public Power Supply System (WPPSS), ...
  2. Nuclear Hazards Clause

    Property insurance policy language that excludes from coverage ...
  3. Plant Patent

    An intellectual property right that protects a new and unique ...
  4. Public Purpose Bond

    This type of bond is used by municipalities to finance public ...
  5. Filthy Five

    A series of power plants located in Massachusetts. The Filthy ...
  6. Project Completion Restriction

    A type of clause, seen most often in municipal bond indentures, ...
Hot Definitions
  1. Current Assets

    A balance sheet account that represents the value of all assets that can reasonably expected to be converted into cash within ...
  2. Tax Liability

    The total amount of tax that an entity is legally obligated to pay to an authority as the result of the occurrence of a taxable ...
  3. Preferred Stock

    A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares ...
  4. Net Profit Margin

    Net Margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage ...
  5. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  6. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ability to pay short-term and long-term obligations, also known ...
Trading Center