“Are we a bunch of naïve buffoons? I don’t think we are. I just think we are way too trusting.” — Former Wyoming Gov. Dave Freudenthal
by Rone Tempest
— June 3, 2014
At one level the Two Elk saga — from its beginning as an ambitious power plant proposal to its conclusion as a failed and questionable stimulus project — is a revealing case of potential fraud and government malfeasance on a grand scale.
On another level, it offers a deep look into the sometimes desperate, often misguided, attempts by our country’s least populated state, Wyoming, to find a meaningful place for itself in the American economy and body politic.
“The problem was that you were sitting there and thinking ‘Man, something like this would really be good for the economy up there.’ And frankly, you kept hoping it was true,” former Gov. Dave Freudenthal said in a recent interview with WyoFile.
Since the coal boom in the late 1970s and early 1980s, Wyoming’s Powder River Basin has been the place where an impressive number of wildly ambitious, highly improbable energy projects have come to die — usually taking substantial sums of public money with them.
Behind this is the special alchemy — spinning coal into gold — that boosters and politicians for some reason find irresistible.
Wyoming has huge reserves of carbonized latent energy just under the topsoil – but that coal has always had its special problems. It is relatively low in energy, compared to coal in the eastern U.S. So it wasn’t until the late 1960s that industry eyes turned to Wyoming, after national interest in clean air made the energy content in the state’s coal less important than its sulfur content (which is lower than that of coals in the east).
Many ambitious state leaders were inspired by a visionary and broadly influential 1971 report called the North Central Power Study. The report, produced by the Interior Department and 35 public and private companies, assumed a steady 6.5 percent growth in electric power demand and predicted that by the late 1980s there would emerge a huge complex of 42 coal-fired power plants and seven coal gasification plants in eastern Montana, the western Dakotas and Wyoming.
Former Wyoming Gov. Dave Freudenthal
The focus on Powder River Basin coal quickly dominated the energy development and industrial growth debates in the West of the 1970s and early 1980s, and inevitably formed the mindsets of up-and-coming policymakers and entrepreneurs in the West, including Ruffatto and Freudenthal. Back then, Freudenthal was at the time top aide to Wyoming Gov. Ed Herschler, Wyoming’s three-time governor, a Democrat famous for his “growth on our terms” slogan.
For the caretakers of the public trust in Wyoming, the question has always been: What’s the best, most profitable way to move the energy in coal to the urban markets that need it? – sometimes, but not always, politicians gave an afterthought to how the process might affect the environment.
Mine-mouth power plants like those projected in 1971 were appealing, but only a few popped up. As an alternative, railroads hauling the coal to distant power plants were obvious, and, it turned out, most practical. But there was a big downside to rail: the mile-long trains of open-top hopper cars that went out laden with coal had to deadhead back to the mines to pick up another load. It was costly and seemed inefficient, like buying a round-trip plane ticket and only going one way.
And the railroad could take a big cut of the profit that might have gone to the mines and to state coffers, if the coal could be processed in Wyoming.
Ever seeking a more profitable way, Wyoming’s coalfield alchemists dreamed up countless alternatives to rail that, over the years, have included gasification, liquefaction, distillation, concentration, compaction, combustion-transmission (Two Elk power plants) and flushing — the latter through immense coal-slurry pipelines.
Trains loaded with Powder River Basin coal have priority through-access at Union Pacific’s Bailey train yard in North Platte, Nebraska. (Dustin Bleizeffer/WyoFile — click to enlarge)
And for almost every scheme — in the heart of coal country and in the corridors of the Wyoming capital — the promoters found ready-and-willing true believers, even for projects based on the flimsiest of faux science.
Sometimes the schemes were propelled by international crisis, such as the 1970s Organization of Petroleum Exporting Companies (OPEC) oil embargo that panicked consumers and created gasoline lines across the country. Other ideas took their inspiration from national events, as Mike Ruffatto and Two Elk did from the 2000-2001 California energy crisis.
And sometimes, it was just plain, old-fashioned greed that clouded common sense.
Probably the first of these doomed efforts to reach Campbell County was the $2 billion Hampshire Energy synfuels project in the 1970s, boosted by $4 million in Department of Energy research grants. The Hampshire plan was to convert, every day, 15,000 tons of coal into 20,000 gallons of gasoline.
Boosters in Gillette got so excited about this proposal that they planned adding an extra floor to the new city hall to house the Hampshire company headquarters and handle the boomtown growth — up to 10,000 new residents — they expected the project to produce. Moreover, city leaders were willing to dedicate 5.5 million gallons of the city’s wastewater to the project, rather than returning it to the aquifer that was the source of the community’s drinking water.
Conceived during the Jimmy Carter administration, the Hampshire project died a quick death in 1982 when oil shortages eased and President Ronald Reagan targeted Carter’s synfuels agenda for budget cuts.
“It was one of those things that just didn’t happen,” former Gillette Mayor Herb Carter told Gillette News-Record reporter Charlie Homans in 2004.
The Hampshire debacle was followed in short order by what has to be one of the lowest moments in Wyoming legislative history, the proposed multi-billion dollar, 1,386-mile, coal-slurry pipeline from Gillette to White Bluff, Arkansas, or, in a later variation, an even longer route into Texas.
The coal-slurry pipeline — pulverized coal mixed with water — was first proposed in 1974 by Energy Transportation System Inc. (ETSI), a consortium of companies that included the California engineering giant, Bechtel Corp.; the late Lehman Bros. financial house; and the Kansas-Nebraska Natural Gas Co.
Map of proposed ETSI coal slurry pipeline. (courtesy Department of Interior — click to enlarge)
The pipeline would have required a huge amount of water — 4.9 billion gallons a year. To facilitate the project, the Wyoming legislature blithely gave ETSI permission to draw what it needed from the subterranean pools of the Madison formation in the geological basin along the Bighorn Mountains.
The legislature stuck to its position even after an environmental impact statement estimated a drawdown of as much as 100 feet of groundwater over an area of 3,800 square miles, including Wyoming’s Niobrara and Goshen counties and parts of South Dakota.
The project was finally abandoned in 1984 in the face of growing opposition from ranchers and environmental groups, and even from railroads, which saw the project as competition for its coal traffic.
One leading opponent was Lusk rancher and legislator Melvin ZumBrunnen, who founded the organization Save Wyoming Water to fight the pipeline. The coal-slurry water legislation, ZumBrunnen said, had quietly slipped through the legislature and blind-sided ranchers.
“None of the ranchers were hydrologists or engineers,” ZumBrunnen told the Gillette News-Record, “so it was just something that got past them at the time. But the more they dug into it, the more they found it would be a potential disaster.”
Then came the era of “clean coal.”
In 1987 the Wyoming legislature approved a bill that would allow the state’s Permanent Minerals Fund to loan up to $30 million to private developers of “clean coal” or coal enhancement technologies.
Burning coal glows from the furnace of one of the newest “WyGen” units at the Wyodak complex near Gillette. (Dustin Bleizeffer/WyoFile — click to enlarge)
By 1995, the state had lent $20 million to three companies, including two in Campbell County, and all three had defaulted. Wyoming Treasurer Stan Smith declared the clean-coal loan program a “disaster” and said that no more money would be lent from the fund.
But that was after $8 million had already been loaned to a Colorado company called Char-Fuels, which had been first in line for the loans back in 1987. Char-Fuels’ proposal was for a $25-million coal-to-liquids demonstration project next to the Dave Johnston power plant outside Glenrock, Wyoming.
Wyoming officials became concerned in 1990 when an audit showed that of the first $2.27 million spent by Char-Fuels, only $6,455 had gone toward construction. But they became outraged in 1992 when Char-Fuels’ management said they wanted to move the whole project to Golden, Colorado.
“It’s bad enough that they are not doing what they said in building a demonstration project in Wyoming,” said then-state Representative Scott Ratliff. “To insult the state further, they’re putting their plant up in Colorado with Wyoming money.”
The most recent example of a major coal project misfire — not counting Two Elk — is the aborted University of Wyoming-GE High Plains Gasification research facility that ended up costing the state $7 million before it was terminated in 2011, when GE pulled out to concentrate on its China business. According to UW vice president and general counsel Rick Miller, $2.5 million of the state’s cost went for general expenses related to the project, and $4.5 million was to be used to repay GE for half of what the company had put into the project.
Although located in Cheyenne, the secretive $100-million private-public joint venture was to burn Powder River Basin coal. The abrupt GE pullout was a bitter event for former Gov. Freudenthal, who had convinced the legislature to obligate $50 million to the state’s side of the joint venture and who had seen it as one of his major achievements in office.
Schematic model of cancelled GE-UW gasification testing facility. (click to enlarge)
“I understand that GE is not a philanthropic organization, but I’m disappointed because I believe they made a commitment,” said Freudenthal. “It seemed to me that we had struck a bargain. It wasn’t something that you would sue over, but there was an awful lot of good faith and everybody was working at it.”
During his first term as governor, 2002-2006, Freudenthal had been one of those most publicly skeptical of Mike Ruffatto’s Two Elk project, several times rejecting the North American Power Group’s constant requests for more bonds.
Freudenthal was sensitive about controversial coal projects. In 1987 he had been an attorney for and investor in a Denver company, Energy Brothers Technology (later KFX Inc.), that received an $11.7 million state loan in the same controversial “clean coal” program that State Treasurer Smith described as a “disaster.”
Freudenthal’s Republican opponents seized on the Energy Brothers loan — which occurred when Freudenthal was a member of the state Economic Development and Stabilization Board — as a weapon against him in the 2002 governor’s race.
“I frankly don’t think we are skeptical enough,” Freudenthal said to explain his reluctance to rubber stamp Mike Ruffatto’s requests for state bonds. “I was involved in that fiasco involving clean coal and I learned a lot from that experience.”
Undeterred by rejection, however, Ruffatto and his agents kept the pressure up.
“As a general rule they would come in and ask for everything we had,” recalled Wyoming Assistant Attorney General Martin Hardsocg, who oversees the industrial bond applications. Hardsocg said the state eventually had to change the rules from a “first-come, first-served” January 1 deadline to give other applicants besides Ruffatto a chance for the bonds.
“We needed to allow the governor more discretion because Two Elk was coming in without fail on the first day of the year,” Hardsocg said.
At one point, faced with another barrage of bond requests from the Two Elk promoters, Freudenthal instructed his staff to confront Ruffatto with a battery of tough questions about the project before he approved any more bonds. “And we still didn’t get very good answers,” the former governor recalled.
Mike Ruffatto
But in September 2006, one month after he received $2,000 in campaign contributions from Ruffatto and his wife Joan, Freudenthal granted North American Power Group another $119 million from Wyoming’s federal bonding allocation. It was the last bond allocation that Ruffatto would get from the state.
After this, Ruffatto placed “Gov. Freudenthal” high on his Power Point presentations of state assets available for his project, along with favorable business climate and an abundant “mine-to-mouth” coal supply.
“Like I was purchased?” Freudenthal reacted angrily when he was informed of this in a recent interview. “That little shit.”
After his reelection in February 2007, Freudenthal received another $1,000 contribution from North American’s Brad Enzi, the Republican U.S. senator’s son, who was then vice-president for governmental affairs for NAPG.
Ruffatto had hired Enzi in 2006, when the gregarious 6-foot, 8-inch former University of Wyoming walk-on basketball player was 31 years old. Enzi had worked previously as a lobbyist for Black Hills Corporation — the Rapid City, South Dakota, energy company of which his father is a former director — and a lobbyist and field sales consultant for the pharmaceutical company SmithKline Beecham.
Brad Enzi was a walk-on UW basketball player, and also played in this UW Cowboy basketball alumni game in 2008. (click to enlarge)
The next year, 2007, Ruffatto promoted young Enzi to replace Daniel Yueh, an electrical engineering graduate of the University of California with more than 30 years experience in power plant construction, as vice president in charge of Two Elk. Yueh said he had resigned because he was frustrated with North American’s inability to obtain transmission connections to complete the project.
The “preference allocation” letter that Freudenthal signed, approving the final $119 million in bonding, contained the following condition, as required by federal law: “No bribe, gift, gratuity, or direct or indirect contribution to any political campaign was offered or made as consideration for the allocation.”
Freudenthal said he was aware of the political campaign contributions from the Ruffattos and Brad Enzi, but said that they had not influenced his decision to approve the $119 million in bonding authority to North American. “There just wasn’t a lot of other demand for the allocation at the time,” Freudenthal explained.
Ever-affable Brad Enzi — who, using the stage name “Big Easy,” had played bass guitar for the former Cheyenne rock band Bell Diablos — was at the time the most prominent and enthusiastic public promoter of the Two Elk project and Mike Ruffatto’s dream.
“The history of America’s innovators include many cases of difficult trails, trials and roads to the progressive achievements that, in retrospect, we as a nation admire,” he explained to WyoFile in 2008. “With grit, determination and responsibility, ours will join the ranks of such success stories, and Wyoming will be proud of the quality jobs, ingenuity and innovation we will deliver.”
In interviews, Brad Enzi claimed that his father, Wyoming’s popular senior senator, has never met Mike Ruffatto, nor has Sen. Enzi attempted to intervene on NAPG’s behalf. “My dad and I have a very Chinese-Wall relationship when it comes to what I do for a living,” he told WyoFile.
Brad Enzi omitted that he had worked briefly for Black Hills, his father’s former employer, or that he was a registered lobbyist from 1998-2000 for the pharmaceutical company SmithKline Beecham (now Glaxco SmithKline) while his father sat on the Senate Health Committee.
In addition to employing Brad Enzi, Glaxco SmithKline since 1998 has donated a total of $47,338 to Sen. Enzi’s campaign committee and political action committee, Making Business Excel.
In addition, for the past 10 years Sen. Enzi has employed Brad Enzi’s wife — now former wife — Danielle Davis Enzi as his fundraising consultant for both the campaign committee and PAC. Laramie County court records show that until their divorce in September 2013, Danielle Enzi’s payments from Sen. Enzi’s campaign contributions accounted for about one-third of her and Brad Enzi’s annual household income of $233,898.48. (According to the most recent Federal Election Commission records available ending March 31, 2014, Danielle Enzi continues to receive payments from Sen. Enzi, including a $10,000 fundraising/consulting bonus in January.)
Still, “Chinese-Wall” or not, having a highly recognizable last name has not hurt in the many times that Brad Enzi has gone before the Industrial Siting Council, Campbell County Commission and other public bodies, pleading for extensions on various permits NAPG has received from the state. His father, after all, had been a popular mayor of Gillette from 1974 to 1982 – serving during both the Hampshire and coal slurry pipeline episodes — before entering the Wyoming legislature and finally, beginning in 1996, the U.S. Senate.
Reed Zars, attorney specializing in environmental law.
As Laramie attorney Reed Zars complained in frustration after one such extension a few years ago, “They should have killed this project years ago. Frankly, I don’t see why they didn’t, except for a senator’s son smiling and waving some documents in front of them.”
In 2007, Zars represented the Sierra Club and the Powder River Basin Resource Council in an unsuccessful federal lawsuit attempting to stop the Two Elk project on the grounds that NAPG had failed to begin construction on time, violating the conditions of an agreement the company had reached with the Wyoming Department of Environmental Quality.
As late as April 2013, more than 17 years after the Two Elk plant was first proposed, Enzi told the Wyoming Industrial Siting Council that construction would finally begin this year, in January. But so far in 2014, said Dan Tracy, a rancher whose property abuts the Two Elk site, nothing has happened on the property except for an occasional visit from a reporter or television news crew looking into the stimulus scandal.
“They haven’t done a damn thing since they did a little leveling out there a few years ago,” Tracy said. “That metal building they put out there for show has been empty since they built it. I know that for a fact because our cows run right up against it.”
Coming next in WyoFile’s Two Elk Saga:
Part 5: “The project from hell”
— 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.
Sources & Acknowledgements
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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