Two Elk

The site of the now-defunct Two Elk Energy Park is pictured March 26, 2013, near Wright. The plant was proposed in 1996. It’s developer, Michael Ruffatto, faces sentencing Jan. 31 after admitting to fraud.

File, Star-Tribune

It was, in some ways, a very Western story that played out on the sage-grouse-speckled prairies near Wright. A developer had a big dream of a 1,300-megawatt power plant that burned waste coal. Wyoming was the place to make it happen.

Mike Ruffatto, the head of North American Power Group of Denver, first proposed the Two Elk Energy Park in 1996. He received enormous support from the locals in Campbell County, public universities and the upper echelons of the state government.

The project appeared promising. It would provide jobs, research and income for Wyoming. The company also had big names associated with it, including the son of Sen. Mike Enzi.

However, 20 years after it was proposed, the now-defunct Two Elk is nothing but windswept roads and a cement pad. Its developer is in court for defrauding the federal government out of millions of dollars, and the state spent more than $10 million locally preparing for a project that never happened.

Wyoming’s industries encourage a spirit of prospecting. While that has led to successes such as the Integrated Test Center near Gillette, it also allows for sagas like Two Elk.

Critics say the problems that allowed for the Two Elk disaster have not been remedied, while lawmakers and state regulators say they could not have prevented it. And few see the fiasco as a lesson learned in Wyoming.

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Some say Two Elk is not a uniquely Wyoming problem. The rise and fall of new projects and strange ventures is as American as apple pie, said former governor Dave Freudenthal, who led the state from 2003 to 2011.

“I don’t know that Wyoming is any more adventurous than anybody else,” he said. “People always have big dreams. The question is, what’s the role of the government in that?”

Freudenthal saw investment in Two Elk as a federal issue, not a state one, because the bulk of the funding came from federal grants.

“I never looked on it as my job to tell the federal government how to spend their money if they were doing that sort of private party stuff,” he said.

While the state did not invest actual dollars into the business, it did initially allow Two Elk to use millions in tax-exempt industrial development bonds — essentially a tax-exempt federal loan contingent on documented progress. However, after an audit of Two Elk, the IRS terminated the bonds’ tax-exempt status in 2011.

The state didn’t provide the bonds as a favor, Freudenthal said. No one else was using them.

Wyoming also contributed $10 million in sales and use tax to build infrastructure in Campbell County. It went to things like roads, sewers and sidewalks in anticipation of the power plant that was never built.

The bulk of the misused money came from the Department of Energy, which granted Two Elk almost $10 million in stimulus grants, ostensibly for research into carbon sequestration.

A Freedom of Information lawsuit brought by nonprofit news site Wyofile showed that of the $7.8 million the government had paid out, it demanded $5.7 million be returned. Federal officials determined none of that money went to the project.

Two Elk’s developer, Ruffatto, pleaded guilty in late October to defrauding the federal government, using grant money not on research but on personal expenses, including foreign travel, an expensive home in Colorado and a Mercedes-Benz.

The bills he sent to the Department of Energy for drilled wells and data collection were phony, the Department of Energy maintained. Ruffatto faces up to five years in prison. His sentencing is Feb. 3.

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Questions remain as to why the project was allowed to continue for two decades despite evidence of malfeasance.

State regulators say they did the job they were tasked to do.

The Wyoming Department of Environmental Quality issued air quality permits to the project required by the Clean Air Act. It also issued extensions for those permits. The Industrial Siting Council, meanwhile, gave its necessary approval of the project.

Last year, the council voted to deny Two Elk’s ninth request for an extension. It was the first time in four decades that the council made such a ruling, and it was due in part to complaints from Campbell County about delinquent property taxes that were finally paid earlier this year.

But it’s important to note that in the previous eight extensions, all petitioned in public meetings, no party came forward against Two Elk, said Kimber Wichmann, chief economist for the Wyoming Department of Environmental Quality.

Two Elk did influence some of the Industrial Siting Council’s rules, such as creating a way to end community impact payments when a project’s construction stops. Those updates were made in 2011.

However, it is not the job of regulators to judge the success of a company like Two Elk, said Keith Guille, spokesman for the Wyoming Department of Environmental Quality.

There are specific regulations for permitting, and those alone guided regulators when they scrutinized Two Elk, he said.

“When you talk about industrial siting, it is hard for us to say whether or not we (as the DEQ) were tough enough (on Two Elk) or not. We have to follow our rules and regs,” Guille said.

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However, others see the continual permit extensions as a failure to properly regulate Two Elk. Air quality permits are attached with requirements — including that construction must begin within two years.

State regulators witnessed the lack of work being done on the project site, said Shannon Anderson, a longtime opponent of the project and a member of the Powder River Basin Resource Council. Over the years, the nonprofit group petitioned a number of government agencies to kill Two Elk’s permits.

“It really is a regulator that just didn’t act,” she said. “There were staff reports saying they weren’t constructing. They were violating their permit, and people at the top just weren’t acting.”

The DEQ temporarily revoked the company’s air quality permit because the project was not progressing, in both 2005 and 2007.

As long as those permits were in place, the company could claim it was deserving of its federal grants, Anderson said.

“They leveraged that for government money,” Anderson said. “And the American taxpayer is the sucker on it.”

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Two Elk is not the first troubled project for the state, and lawmakers have proposed bills in the past to prevent these kinds of issues.

Some lawmakers argued in the summer of 2015 that companies like Two Elk shouldn’t be able to request multiple permit extensions, which leave communities unsure of when and how development will take place. Rep. Mike Madden, R-Buffalo, supported a limit on extensions. He also sponsored a bill to change the way community impact money is doled out. The bills had varying success.

Still, Madden said the state continues to operate much as it did with Two Elk. The DKRW Advanced Fuels project near Medicine Bow, for example, was halted by a number of large setbacks. The company suspended its plans earlier this year.

Freudenthal admitted that occasionally there is lenience given to some companies during permitting, but as long as that stops before bending rules and regulations, there is no harm done.

“What you have to be careful of is a move towards saying, ‘We will dumb down the standards in exchange for development,’” he said. “Then you are making a deal with the devil.”

That didn’t happen with Two Elk, he said.

From a political perspective, the question is not whether government should financially support private enterprises like Two Elk but how Wyoming can create an environment where the economy can grow, he said.

Wyoming receives far more assistance from the federal government than it pays in, a fact that is at odds with the identity of Wyoming as fiercely independent, Freudenthal said. It was federal assistance and private enterprise that made Two Elk possible, he added.

The state needs to consider how willing it is to become independent, by considering changing its tax laws and allowing for true diversification. Industry bears most of the burden. But tax diversity is an old argument that never seems to go anywhere in Wyoming, he said.

“The government’s role is to encourage fundamental research, workforce development and infrastructure” he said. “From time to time it may be important to do some incentives.”

Current Gov. Matt Mead said the state is committed to adding value to its existing resources, which is exactly what Two Elk promised to do.

“The original decisions related to the Two Elk project did not come during my time as governor, but the lessons have been learned and appropriate actions taken to address the loopholes,” Mead said. “As to future projects, we want to benefit from the lessons learned, implement proper caution and find avenues to support properly researched projects.”

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In stark contrast to Two Elk, Wyoming’s Integrated Testing Center near Gillette is one way the state has stepped into a partnership with the private sector to encourage new technologies in carbon sequestration, said Jason Begger, director of the Wyoming Infrastructure Authority.

Developing technology is risky, so the partnership can help protect both sides, he said.

“Nobody wants to buy/build the first one. They want the tenth one — after all of the kinks have been worked out,” he said. “This is where the public sector can step in with a partnership and cost share. The government can take on some of the costs or mitigate some of the risks, to a level that’s acceptable to the private company. However, there needs to be a balance. It’s always easier to spend someone else’s money, so both sides need to assume some of the risk to ensure things move forward.”

The ITC Center has some lessons for how to effectively wed government and business in the interest of research, he said.

Investment in a project from the private sector shows confidence from an inherently risk-averse group.

“If the private sector is unwilling to step up and provide more direct contributions, we need to ask ourselves why,” he said.

But the partnerships created between the public and the private sectors eventually reach a point where government should step back, he said.

“At what point is the project commercially viable and can move forward without additional government support?” he said. “Not an easy question to answer, but an important piece of the puzzle.”

Follow energy reporter Heather Richards on Twitter @hroxaner

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