What is "whoops" and how did it come to refer to one of the biggest municipal bond defaults in history?

By Andrew Beattie AAA
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.

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