“As much as we wanted it to be real, it wasn’t” — former Wyoming Gov. Dave Freudenthal, September 10, 2013
(First in a series)
by Rone Tempest
— May 20, 2014
Mike Ruffatto’s dream was to build his own private utility, a massive, roaring, electric power empire, in the heart of Wyoming coal country.
Over the past 20 years, the Colorado attorney-businessman has promoted seven different power plants — five of them named Two Elk — in the rolling prairie and scoria outcrops south of Gillette. Had they been built, they would have met the electricity needs of millions of households in Colorado, California and Arizona, and employed thousands of Wyoming workers.
In his most visionary moments, Ruffatto told potential investors that he planned a “Wyoming Palo Verde” — a coal-fired version of Arizona’s 3.3-gigawatt nuclear power complex 45 miles west of Phoenix that powers cities across the American Southwest.
For admirers — and there were some — the Ruffatto idea was a bold play by a lone-wolf operator in a business arena where usually only established utilities or major regional cooperatives can compete.
New power plants cost more than $1 billion to build. Transmission lines can cost several hundred million dollars. No one ever said that Mike Ruffatto lacked audacity.
To skeptics, Ruffatto’s scheme was a taxpayer-milking fantasy as brazen as anything the late Billie Sol Estes ever concocted with his phantom West Texas fertilizer tanks.
“It was like a propaganda deal. It was all smoke and damn little fire,” said Vic Garber, former senior landman with Peabody Coal Company in Wyoming who had frequent dealings with Ruffatto and his agents over the years.
The Two Elk saga is made up of intertwined stories: one man’s outsized dream; Wyoming’s desire to believe in energy castles in the air, kept aloft by taxpayer dollars; and the federal government’s failure to bring anyone down to earth, until millions of dollars in public money had been squandered. It is, in short, a case study of territorial ambition, personal greed, political nepotism, government malfeasance, and a highly creative interpretation of federal tax laws.
On another level, however, it is a Gatsbyesque tale of a striving former Air Force navigator — the first of his working-class family to attend college — who built a modest energy business by piecing together scraps acquired from a bankrupt Oklahoma energy company, and then attempted to parlay it into unimaginable wealth as a Rocky Mountain utility magnate.
In this respect, at least, it is a very American story. Where else would someone even dare to propose building a line of seven $1-billion power plants on the sagebrush steppes in arid and remote Wyoming — populated by more pronghorn than people — to electrify Phoenix, Las Vegas and the rest of the air-conditioned American Southwest?
For a brief time at the very beginning of this century — when California was darkened by electricity shortages and Enron Corp. was in its full glory as a swaggering energy trader — the Two Elk dream seemed plausible enough, at least to a handful of politicians and bureaucrats in Cheyenne and Washington.
Two successive Wyoming governors, Republican Jim Geringer and Democrat Dave Freudenthal, allocated Ruffatto and his North American Power Group Ltd. a total of more than $445 million from the state’s allotment of tax-exempt industrial development bonds to finance the first stage of the dream, the 320-megawatt Two Elk I plant.
The Internal Revenue Service obliged, at least for a time, by agreeing to classify the coal-fired Two Elk I plant as a “solid waste disposal and recycling facility” so it could qualify for the bonds under special public-works provisions in the U.S. Tax Code.
State officials, meanwhile, spent $11,066,396 of Wyoming sales and use tax dollars, scrambling to build the infrastructure — new streets and sewers, sidewalks and culverts — to support the proposed new power plants.
Late to the party, the federal Department of Energy in 2009 and 2010 pitched in with $9.9 million in stimulus grants — part of the Obama administration effort to create jobs and revive the American economy.
To date, however, not one of the proposed North American Power Group plants has been built. The stimulus grants — ostensibly to study carbon sequestration potential on the Two Elk site — were suspended by the DOE in January 2012 because of numerous accounting irregularities.
But that was not until $7.3 million of the stimulus money had already been spent, much of it on inflated salaries for Ruffatto and his employees, including North American Vice President Brad Enzi, son of Wyoming’s senior U.S. Sen. Mike Enzi.
Ruffatto paid himself more than $1 million, more than President Obama made in the same time period. Federal pay vouchers, obtained by WyoFile under the Freedom of Information Act, show that Ruffatto used stimulus funds to pay Brad Enzi — whose Republican senator father described the stimulus program as “bailout baloney” — more than $130,000. This amount accounted for the bulk of Brad Enzi’s annual income, according to a financial disclosure he made in his 2013 Laramie County divorce case.
Meanwhile, no new jobs were created. Among the 10 similar carbon sequestration study grants issued in 2009-2010, Two Elk was the only one that did not create new jobs, the principal goal of the stimulus program.
Today, after more than 15 years of promotional hype and government indulgence, the only signs of construction — power plant and carbon sequestration study included — at the Two Elk site are: a gravel road leading from nearby State Highway 450; an empty metal shed used mainly by hunters as a place to gut their kills; and a forlorn, rebar-studded concrete pad shrouded with Canada thistle.
After the Two Elk stimulus grant was suspended in January 2012, it was referred by the Department of Energy to the U.S. Attorney’s office in Pittsburgh, Pennsylvania, which has jurisdiction over the DOE’s National Energy Technology Laboratory, headquartered there.
More than two years later, National Energy Technology Laboratory chief counsel Paul Detwiler said the Two Elk case continues to be the subject of an “ongoing investigation.” Several recent attempts by WyoFile to obtain records related to the Two Elk case under the Freedom of Information Act were denied on the grounds that the case was still under active investigation and “pending enforcement action.”
Paul Skirtich, the Pittsburgh U.S. attorney and government fraud specialist in charge of the case, has not responded to numerous WyoFile inquiries into the status of the case. Rickey Hass, the deputy inspector general assigned to the DOE’s internal investigation of the case, has also declined comment.
Meanwhile, Charles Russell, a Denver public relations agent Ruffatto hired to represent him in dealings with the press, said his client and his client’s lawyers continue to provide documents to federal investigators as requested.
Ruffatto, through Russell, issued the following statement: “Two Elk is a very complex project with significant challenges for science, technology, finance and oversight. North American Power Group is cooperating with the U.S. government in determining where problems may have occurred and the best course to follow going forward.”
Whatever the outcome of the lengthy federal investigation, the questions of how Ruffatto’s North American Power Group got the stimulus grants in the first place, and how the private company managed to keep them despite numerous warning signs that it was in trouble, are things for which federal officials and regulators bear considerable responsibility.
In fact, the irregularities surrounding the Two Elk case go back to the very beginning of the stimulus program, in August 2009, when North American Power Group benefitted from an extraordinary one-week extension in the application deadline for the carbon sequestration stimulus grant.
Although the extension was offered to all applicants for the 10 carbon sequestration grants offered by the DOE, North American Power Group appears to have been the principal beneficiary of the delay. Other applicants for the grant who were interviewed for this story said they were prepared to meet the original deadline.
But details of the extension — including who requested it; the reason it was granted; what, if any, support had been received from outside the agency, including possible Congressional requests — remain a mystery.
National Laboratory chief counsel Detwiler said the agency searched but could find no records — including emails or written communication — related to the extension except for one email forwarded by a project officer saying that the request for extension had been granted.
The curious, unexplained extension was only the earliest sign of something peculiar in the process that got Mike Ruffatto and his company nearly $10 million in public funds for a scientific project that ultimately did not meet any of its main objectives, including the drilling of a 13,000-14,000-foot-deep well that was supposed to be its centerpiece.
A six-month WyoFile investigation, supported in part by the Fund for Investigative Journalism in Washington, D.C., and based on a broad review of public records and dozens of interviews in 10 states and the District of Columbia shows that:
* The Department of Energy and its National Energy and Technology Laboratory awarded North American Power Group, Ltd. $9.9 million in stimulus funds despite the company’s extensive, well-documented history of problems including: missed deadlines; unrealized objectives; financial shortcomings; and permitting issues in three states, dating to the late 1990s.
* Despite the scientific and engineering nature of the stimulus project — one of 10 “carbon sequestration site characterization studies” commissioned by the DOE in 2009-2010 — the North American Power Group project was unique in that none of the key players in the company had any training or expertise in the area. Ruffatto is a lawyer with experience in natural gas marketing and power plant acquisition. North American vice-president Brad Enzi was a former Capitol Hill lobbyist with a communications degree. Employee Matt Munford was a former strength and conditioning coach at the University of Wyoming in the 1990s when Brad Enzi was a walk-on basketball player there.
* At the same time that North American Power Group was awarded the stimulus grant, another competing proposal for the same geologic and geographic area, sponsored by the Crow Nation and administered by the Big Sky Carbon Sequestration Project of Montana State University, was rejected by DOE-NETL. This was despite the fact that many scientists and engineers considered the Crow proposal — called “Many Stars” — more worthy and more likely to meet the Obama administration goals of creating new jobs and stimulating the economy. Unlike the last-minute North American Power Group bid, the Many Stars application had been in the works for several months and was completed well before the original deadline.
* Although a number of accounting irregularities had already surfaced in the first $4.9 million federal grant awarded to North American Power Group in 2009, DOE-NETL nonetheless awarded the company a second $5-million grant in 2010. The department did not suspend the two grants until January 2012, after most of the money had been spent.
* DOE officials either ignored or were unaware of an Internal Revenue Service audit of the Two Elk power project bonds that began in late 2009, three years before the stimulus grant was finally suspended. The audit, completed in April 2011, determined that Two Elk no longer qualified for federal tax-exempt status on $445 million in industrial development bonds that the project had obtained from the state of Wyoming. The IRS rescinded the tax-exempt status.
* Among the questionable bills paid in full by DOE was a $2,791,103 charge for “heavy equipment mobilization; drilling pad and mud pit construction; drilling water procurement; layout area preparation” from North American Land & Livestock, a private, wholly-owned subsidiary of NAPG, of which Ruffatto is the only officer. Engineers working on equivalent DOE-funded sequestration projects said the charge was more than 20 times what it should have been for the work described. The subcontractor, Tyler Miller of Gillette, Wyoming, who did the actual work in February and March 2011, said he billed North American a total of $86,000.
* DOE officials, at least initially, failed to track and compare the expense and salary vouchers filed by North American Power Group against those filed by two other nearly identical stimulus grants, one in Wyoming, administered by the University of Wyoming, and one in Colorado, administered by the University of Utah. Both of those projects met project deadlines and drilled deep exploratory wells that were part of the grant specifications. Neither submitted the huge salary and site preparation costs that NAPG invoiced. Both — unlike North American Power Group — created new jobs.
Coming next in WyoFile’s Two Elk Saga:
Part 1: “Wearing suits and using big words”
— Rone Tempest was a longtime national and foreign correspondent for the Los Angeles Times. One of the co-founders of WyoFile, he served as its editor from 2008 to 2011. His first story on the Two Elk power plant project appeared in February, 2008. Tempest lives in Lander.
EDITOR’S NOTE: This Two Elk series, supported by grants from the Fund for Investigative Journalism and WyoFile founder Christopher Findlater, is an extensive case study of one troubled project; its audacious Colorado-based promoter, and the state and federal officials who kept the project alive despite numerous warning signs that it was a scheme beyond saving. Stories in “The Two Elk Saga” will appear on Tuesdays and Thursdays until the series concludes on Tuesday, June 10.
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