LOS ANGELES - July might be a pivotal month for efforts to craft a speedy out-of-court settlement in the Washington Public Power Supply System cost-sharing case, based on recent developments affecting the complex lawsuit.

U.S. District Court Judge William D. Browning recently extended a stay in the case to Aug. 1, which gives parties in the proceeding more time for settlement negotiations before discovery moves forward.

Market participants and others expect lawyers in the case to meet in mid-July to discuss possible settlement terms.

The nine-year old case represents one of the last avenues of recovery for current bondholders of WPPSS nuclear power units 4 and 5. The supply system defaulted on $2.25 billion of units 4 and 5 debt after the Washington State Supreme Court ruled in June 1983 that local utilities lacked authority to enter participants' agreements securing the bonds.

Chemical Bank, the units 4 and 5 bond trustee, alleges in the cost-sharing case that WPPSS improperly charged about $400 million in construction costs to units 4 and 5 rather than to their respective "twinned" plants, units 1 and 3.

In October 1990, Judge Browning said that cost-sharing principles akin to those espoused by Chemical Bank should have governed expense allocation under the bond resolution. That ruling buoyed units 4 and 5 bondholders because it essentially barred using units 4 and 5 funds to subsidize the costs of units 1 and 3.

In February, however, the U.S. Ninth Circuit Court of Appeals disagreed with Judge Browning's findings and reversed his decision. The appellate court instead favored a cost allocation scheme based on a formula used by the supply system.

Chemical Bank stressed that the ruling still preserves the trustee's right to an accounting of how WPPSS spent units 4 and 5 bond funds. But market participants generally agreed that the reversal lowered prospects for potential recovery.

The appellate court remanded the case to Judge Browning, but discovery proceedings have been on hold because of a stay in the case. Judge Browning on June 25 agreed to extend the stay - rather than let it expire on that day - after parties in the case requested the extension.

In a brief order, Judge Browning said it appeared "there's a good-faith effort being made to explore avenues of settlement in this matter."

Certain investor-owned utilities, who are defendants in the case along with municipal utilities and others, suggested last month that Judge Browning consider appointing a settlement master. The private utilities expressed concern about a lack of progress in settlement talks.

But lawyers representing other parties said it was premature to appoint a settlement master and instead asked for the extended stay.

Some market participants said it makes sense to explore a potential settlement at this stage of the proceeding.

"It's a terrible case from the standpoint of how long it could take and how much it could cost," said Eldon C. Miller, chairman of Miller, Johnson & Kuehn Inc. in Minneapolis and a holder of units 4 and 5 debt.

Out-of-court settlements in 1989 ended a separate bond fraud case stemming from the default. That settlement pot, which now totals more than $800 million, will be allocated to various bondholder classes based on when they purchased WPPSS 4 and 5 bonds.

A group of current bondholders, including Mr. Miller, opposed certain aspects of the settlements. Those bondholders are expected this summer to ask the U.S. Supreme Court to review their arguments, following a decision by the Ninth Circuit in February to reject their appeals.

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