n060  1503  06 Dec 81
BC-MARKETPLACE
(BizDay Commentary)
By ROBERT METZ
c. 1981 N.Y. Times News Service
    HANFORD, Wash. - Three of the five nuclear power plants of the
much-criticized Washington Public Power Supply System are clearly
visible from a bluff overlooking the Columbia River several miles
south of this town.
    Two of those plants steadily produce power. So does a third,150
miles west in Elma, Wash. But Hanford's plant No. 4 remains inactive.
It is only partly completed, like plant No.5, also in Elma.
    That's not news to readers of The Seattle Post-Intelligencer.
Seattle bond dealers complain that the newspaper's readers have been
exposed to ''reams of adverse publicity'' about the two plants. The
dealers insist that, although there is no assurance that either of
these plants will ever produce power, their bonds are stronger than
their A rating suggests.
    The dealers conduct a lively business in the Project 4 and Project 5
bonds among affluent investors who seek tax-exempt yields as high as
15  1/2 percent - equivalent to a yield of 31 percent on a taxable bond
for investors in the 50 percent tax bracket. The Washington Public
Power Supply System bonds, dealers say, are not market sensitive but
are supply and demand sensitive. So yields have been virtually
unchanged from their record levels despite recent strength in the
bond market generally.
    Gary Lundgren, executive vice president of Marshall & Meyer, said in
an interview in his Seattle office that the ''fairly wealthy''
individuals who buy Project 4 and 5 bonds already have ''substantial
portfolios of municipal bonds.'' He said, ''They are willing to
commit as much as 10 percent of their portfolios to Project 4 and 5
bonds.''
    Although he recommends the bonds only cautiously, Lundgren still
would not class them as a speculation. He said his firm, a
wholesaler, holds sizable positions in Project 4 and 5 bonds. He
added that $1.75 million worth of the bonds were sold on the day of
the interview, high up in Seattle's Norton building.
    Ralph Stuart, who offers the bonds at retail for Inter-Pacific
Investor Services on a lower floor of the same building, is more
bullish.
    He argues that the A-rated Project 4 and 5 bonds are actually
superior in quality to bonds with higher ratings that members of the
power authority have issued independently. The Washington Public
Power Supply System is made up of 88 small power authorities.
    Under a ''take or pay'' clause, the participants are reuired to pay
for electricity, whether they receive it or not. So interest and
principal on the bonds of all five nuclear projects is assured. They
take precedence over bonds of the participants, many of which are
rated higher. For example, bonds of Snohomish County Public Utility
District 1 carry a double-A rating on its own bonds and yield just12
percent. Snohomish has a 13 percent interest in Projects 4 and 5.
    Everyone agrees there has been some mismanagement in the WPPSS
projects, which were designed to assure Washington and Oregon of
sufficient power for the foreseeable future. Reduced demand for
power, arising from increased conservation awareness and the last
decade's surge in oil prices have caused a re-evaluation of future
needs. The five projects are now 500 percent over their budget, and
the $6.8 billion in bonds outstanding so far have taxed the capacity
of the market.
    Stuart says he is confident that the courts will uphold the
take-or-pay clause.
    Meanwhile, he notes, citizens of Richland in the
Pasco-Richland-Kennoweck area, for example, have been required to pay
a 5 percent increase in their base power rate. That amounts to an
average of $3.70 a month until March 1983. After that and for the
following 30 years, the added tariff would amount to a maximum of18
percent. The basic power rate for Richland, Wash., is 2.164 cents per
kilowatt-hour plus a $5 monthly fee.
    The Consolidated Edison Co. of New York, by comparison, has a basic
rate of 11.563 cents per kilowatt-hour during the winter. That's a
cent and a half less than the price from mid-May to mid-October.
Taxes and other charges add significantly to Con Ed's charges in many
cases.
    Many municipal bond dealers suggest that the courts might reject the
take-or-pay clause. One bond expert noted that no one has yet tried
to enforce such a clause in court.Among institutional
investors, interest in buying more Project 4 and 5 bonds is said to
be nil because they already own so many of them and because of the
potential risk of default. Dealers say that trading in the 4 and 5
bonds is quite slow, and they warn that the price would probably drop
sharply if an instititional holder decided to dump a sizable position.
    Moreover, the bonds of Projects 1, 2 and 3 are rated triple-A and
have recently been trading to yield 14 percent - equivalent to 28
percent for a taxpayer in the 50 percent bracket.
    One bond specialist expressed this sentiment: ''Why bother with the
uncertainties of Project 4 and 5 bonds when 1s, 2s and 3s are so much
better and offer substantially higher yields than triple A's
generally?''
    
nyt-12-06-81 1802est
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