LOS ANGELES -- Two public utility districts this week filed suit over the termination of Washington Public Power Supply System nuclear power projects 1 and 3, even as WPPSS and Bonneville Power Administration officials were working on a plan to avoid a court judgment on termination-related issues.

The suit, filed Monday by the Clark Public Utilities District and Mason Public Utilities District No. 3, contends that WPPSS does not have authority to keep mothballing the partly-completed plants.

Meanwhile, a proposed financing in the works by WPPSS could render moot the pursuit of a court judgment on legal issues tied to potential termination of units 1 and 3, officials familiar with the financing said.

Various officials at WPPSS and Bonneville -- which secures units 1, 2, and 3 debt -- are in New York City this week to meet with letter of credit providers for a possible variable-rate sale.

That deal, if completed, could result in defeasance of the last original debt of units 1 and 3 that has not already been refinanced, and thereby remove governing covenants that raised termination-related questions.

Certain ambiguities and inconsistencies between units 1 and 3's net billing agreements -- which obligate Bonneville to secure the bonds -- and related project and ownership contracts have raised questions about whether termination and the subsequent disposition of property might constitute an event of default. Such a declaration, in turn, might raise questions about whether principal payments would be accelerated on existing 1 and 3 bonds.

To allay market concerns, WPPSS and Bonneville have said they might pursue a declaratory judgment action in federal court. The action would aim to resolve ambiguities in the net-billed resolutions and related contracts to clarify termination procedures and the potential legal effects.

In a telephone interview Wednesday night, however, Bonneville officials said they might be able to sidestep the court action if they can refinance the rest of the old debt that contains some of the covenant restrictions fueling the questions.

At the interview were: Robb Roberts, a Bonneville attorney; Tom Thompson, chief of Bonneville's financial review branch; and Richard Clark of Alex. Brown & Sons Inc., Bonneville's financial adviser.

Defeasing the rest of the original debt would enable the agencies to "spring forward" to resolution amendments -- in place since WPPSS began refundings in 1989 -- that clarify that termination would not be construed as an event of default, the officials said.

Legal counsel for WPPSS and Bonneville, along with bond lawyers who worked on units 1 and 3 refunding sales, have previously opined that termination would not constitute such an event of default.

The variable-rate transaction under consideration would essentially kill two birds with one stone, the Bonneville officials said.

Besides defeasing the older debt containing ambiguous termination language, the variable-rate financing would help provide a better match between the return on investment for existing reserve funds and the cost of borrowings. Clark noted that such asset-liability management also has been used recently by other large power agencies.

The financing might be accomplished later this fall, the officials said, paving the way for further termination discussions by January.

The Bonneville officials expressed puzzlement at this week's utility district lawsuit, noting that it could be counterproductive when they already are trying to address the legal angles of termination.

The lawsuit was not a surprise, however, because controversy has gone on for years over expenses connected with mothballing he plans. Bonneville officials said they are closely studying the suit.

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