Date: 1982-12-21
Speaker: HAROLD HUNTER (republican)
Chamber: H

Administrator. Rural Electrification Administration. Admninistrators Office. Washington. D.C. DEAR MR. HUNTER: I was pleased to have you come by my office today and renew our long acquaintance. It is particularly gratifying to have so prompt a response to my inquiry to you and Secretary Block. I also appreciate your willingness on Monday to meet and work with coop delegations from the Northwest to address specific problems. Both your Agency and I are rightly concerned about the effect of the WPPSS situation on the continued operation of those electric cooperatives which look to REA for financial advice and assistance. As we discussed. my concern is that REA not be or not be perceived as coercing the cooperatives to make payments to WPPSS before the legal liability of the group is determined by a court of competent jurisdiction. I have urged all parties through BPA Administrator Johnson and Secretaries Hodel and Watt that such a court decision may not be as desirable as a negotiated arrangement among the entities involved in WPPSS. including the federal government. the bond underwriters and the participants. My concern remains that the solution not be arrived at by improper pressure on the participants from a federal agency. I am particularly gratified that you are prepared to enlist the resources of your agency in determining how the contracts were prepared and executed and how the financing history of the project developed. I look to your early followthrough on getting needed answers and pledge my cooperation in arriving at an equitable resolution of a most complex situation. You can understand that these cooperatives are apprehensive that the REA will use its loan authority as a means of applying pressure on them. It is my understanding that REA has issued directives to participants which they perceive as requiring them to pass resolutions and make payments which would seriously jeopardize their legal positions in court actions. which would require them to take actions contrary to member mandates. which in some cases. would force them to violate orders of regulatory commission. Therefore. it is my hope that our conversation will induce REA to treat approved loans as outside the issue here and process them normally. One serious question is the manner in which the bonds financing the WPPSS project were structured. As you know. I have asked key government people and the underwriters themselves to publicly reveal who now owns the bonds. how the rate of return was set and why the final nine issues were let on a negotiated rather than a competitive basis. So that you will understand my concern about the potential for government agencies working for the financial community rather than for those for whom they are mandated to assist. I call your attention to comments by one Edward Kresky. a financial adviser to BPA. le says that the financial community feels that the 88 utilities are "able to pay but wont". As.uming that to be true. how does it bear on the mandate of REA and BPA to service and protect the legal rights of these entities and not the Wall Street community? This same man says that participants who refuse to pay will be banished from the credit markets. Since he is speaking as a consultant to BPA. is he enunciating the government position even as to government financial credit? I think that it is past time for BPA and REA to come forward and make it clear whose interests they are protecting in this scandalous matter. It is further incumbent on both organizations. which. it appears. collaborated to induce the 88 to enter a participation agreement which both agencies had approved in advance. to make a full disclosure of all facts in their possession bearing on Agency decisions and activities. and obligations of the various parties. Such disclosure should also require the financial institutions to reveal fully the economic history of the project. including who holds the bearer bonds issued by WPPSS. Another prime question is how were the ratings for the bonds arranged so at variance with the known facts regarding the condition of the project. I do not need to remind you that at this point only one of the five plants has any immediate prospects of being completed. As we discussed. I am disturbed that the two principal government agencies involved. BPA and REA. have demonstrated more interest in forcing the participants to pay than in determining whether. given all the unusual circumstances surrounding the financial arrangements in WPPSS. there was any impropriety involved? The participants will. to the extent they have the capacity. pay what they owe on the WPPSS projects. Of this I am confident and I support that position. The overriding questions. remain. what do they owe? Is the contract binding? Was the underwriting above reproach? Were the participants induced to enter the arrangement for the reasons given publicly. or were they brought in to bail out an already deteriorating situation? I look forward to your prompt assistance in obtaining answers to the questions I have stated and others. I am also reassured by your report that. although a task force had been considered. at present no such move is contemplated over the issue of WPPSS payments. I will continue to give close attention to the WPPSS matter and the relationship between the REA. BPA and the participants. I expect that your administration and this office can cooperate in that endeavor and hope you will keep me current on developments within REA in those matters concerning any coops which are participants as they are affected by the WPPSS situation. Again. I look forward to working with the Administration in solving the situation with the minimum of damage to all the parties. Sincerely.