Sunday, November 13, 2011

Federal Stimulus Waste: Another "Green" Projecct Transferring Taxpayer "Green" into Private Pockets

From my brother, Rone Tempest, at WoFile,
Two Elk Stimulus: Big paychecks but no new jobs
Over the past two years, the federal stimulus program paid the owner of a Colorado-based energy company and the company’s Wyoming representative more than $1 million in salaries and benefits for a Department of Energy carbon storage study in Wyoming’s Powder River Basin, according to records obtained by WyoFile under the Freedom of Information Act.

Federal pay invoices show that Michael J. Ruffatto, founder and CEO of North American Power Group Ltd., based in Greenwood Village, CO, received $955,343.29, and Brad Enzi, NAPG’s Cheyenne-based representative and son of Wyoming US Sen. Mike Enzi, $128,394.73 for the Two Elk Energy Park Carbon Site Characterization project from September 2009, when the study began, through July 31, 2011, the last date for which records were available. According to the National Recovery Act Transparency and Accountability Board, Ruffatto and Enzi’s compensation is nearly 20 percent of the total spent so far on the project.

Overall, the price tag of the Two Elk carbon site characterization project is nearly $10 million — $9,949,962.00. Its purpose is to determine if the sub-surface geology of the Powder River basin is suitable for storing CO2 produced by power plants and other industrial sources.

The project was awarded two grants from the DOE National Energy Technology Laboratory. It is part of the Obama administration’s National Recovery Act stimulus package aimed at jump-starting the economy and creating new jobs.

However, in his most recent quarterly filing to the National Recovery Act Transparency and Accountability Board, Ruffatto, a millionaire lawyer and philanthropist who heads the scientific project, reported that “no new direct jobs have been created for this project.”

Rather than creating new jobs, Ruffatto reported, a percentage of his and other North American Power Group employees’ wages were paid for with stimulus funds. He estimated that, in addition, 15 “indirect jobs” and 60 “induced jobs” have been created by the federal stimulus money.

Two Elk

The timing of the stimulus grants was particularly good for North American Power Group. The company had seen a series of setbacks to its ambitious – but long delayed — $1 billion, 320-megawatt Two Elk power plant project 40 miles southeast of Gillette.

North American owns four smaller operating power plants in California, but the Two Elk plant on 880 acres in Wyoming is to be its showcase project. At one point, Ruffatto told investors of plans to build seven power plants on the Two Elk site — biomass, coal and natural gas — to provide power to Colorado and the American Southwest.

Had the dream been realized, he would have commanded a sizeable private utility.

But before the first Two Elk plant could be constructed in Campbell County, a combination of financing, transmission and regulatory problems slowed the construction process to a crawl and then to a standstill. Local residents jokingly referred to the stalled project (in the works since the late 1990s) as “No Elk.”

The latest blow to Two Elk came this spring, when an IRS audit determined that not enough progress had been made on the plant for North American to continue to qualify for tax exempt status on the $445-million in Industrial Revenue Bonds the company holds. The bonds had been sponsored by Campbell County and approved by successive Wyoming governors — Republican Jim Geringer and Democrat Dave Freudenthal.

The bonds were issued in 2007 by Campbell County under a creative interpretation of the US Tax Code that classified the coal-fired Two Elk power plant as a “solid waste disposal and recycling facility” because the promoters, North American Power Group, said they intended to burn “waste coal” from the giant nearby Arch Coal and Peabody Coal mines.

“Waste coal” is coal that mining companies judge not worth the cost of interstate rail transport to power generators. It is generally reburied at the mine site.

Under the North American plan, the Two Elk plant would “recycle” the lower quality coal by burning it. (See earlier WyoFile Story for more details)

Because interest received by tax exempt bondholders is excluded from gross income, the bonds were originally a major selling point for the power plant project.

But in an April 14, 2011, letter to Campbell County officials, the IRS manager for Tax Exempt Bonds Robert E. Henn wrote that an agency examination “determined that the Bond proceeds were not sufficiently spent to provide a solid waste disposal facility as required by the Code. The issuer (Campbell County) and borrower (North American Power Group) asserted that such a failure was the result of unanticipated impediments in proceeding with the facility.”

As a result, Henn wrote, “the parties agreed to convert the tax-exempt bonds to taxable bonds.”

Ruffatto said that North American still hoped to convert the bonds, now taxable, to “tax exempt bonds at a later date.”

In his letter, however, IRS supervisor Henn wrote that Campbell County and North American Power Group “should strongly consider the appropriateness of any future tax-exempt issuances with respect to the project unless there is an imminently implementable plan to buy them back.”

Meanwhile, North American’s website and public statements no longer mention “waste coal” in connection with the Two Elk power plant. Instead, as Ruffatto wrote in an October 26, 2010 letter to the California Energy Commission, it now plans to burn “woody waste resulting from the removal of hazardous fuels in forests throughout the western United States due to an epidemic of mountain pine beetles.”

76 Hours Per Week @ $214.38 Per Hour

Approved in 2009 and 2010, the federal stimulus grants to North American Power Group allowed Ruffatto to use federal funds to pay a significant portion of his own salary and that of several of his key employees, including Enzi, while waiting for conditions to improve for the construction of the Two Elk power plant.
A salaries and fringe benefits invoice for employees from the North American Power Group and North American Land & Livestock for the month of October. (courtesy of the Department of Energy — click to enlarge)

Ruffatto bills the government $214.38 an hour as “chief investigator” for the stimulus project.

Both he and R. Paul Detwiler, chief counsel for the National Technology Energy Laboratory that awarded the stimulus grants, defended the payments to WyoFile as being consistent with the nature of the work and qualifications of the North American Power Group employees. This includes Brad Enzi, a 1997 University of Wyoming journalism-communications graduate and former Washington, D.C., lobbyist, who is paid $80 an hour from the federal stimulus grant, DOE documents show.

Ruffatto, 65, said in a telephone interview that his hourly rates were worked out in advance with DOE and, in his case, represented a “discount” from his normal rate of pay as chief executive of a regional energy company with offices in Colorado, California and Wyoming.

In one month alone — October, 2010 — Ruffatto was paid $73,369.52 in salary and benefits from the stimulus funds, according to the invoices obtained by WyoFile. Ruffatto reported working 305 hours in that month — or 76 hours a week— for the stimulus project, while also performing his other duties as CEO of North American Power Group.

By comparison, the Wyoming median household income for an entire year is $54,400, according to the most recent census reports. Ruffatto received more in federal pay and benefits during the two-year period than President Obama, whose annual salary is set at $400,000 with a $50,000 expense allowance.

According to his company website, Ruffatto founded privately-held North American Power Group in 1992:

“Ruffatto has over 30 years in the gas, oil and energy trading and power generation industries, including both regulated and unregulated businesses, as a businessman and lawyer. Mike served as a Board of Trustees member of the Western Electricity Coordinating Council from 1999-2002.”

A company presentation prepared for investors in December 2006 reported NAPG’s annual revenues at $85 million, with total assets at $614 million and a net annual income of $20 million.

Accordingly, Ruffatto maintains an upper income lifestyle. Public records show he owns homes in Colorado and California. The Arapahoe County Assessor appraises Ruffatto’s 6,000 square foot estate on 10.7 acres in the affluent Cherry Hills Village suburb south of Denver at $9 million.
Michael Ruffato's home in Corona del Mar, California

Michael Ruffatto's home in Corona del Mar, California, is worth approximately $2 million. (Sarah Tempest/WyoFile — click to enlarge)
Public records show that Ruffatto also owns a smaller home that is valued in the neighborhood of $2-million in Corona del Mar, California, an extremely affluent Orange County beach community. In July 2009, the Orange County Business Journal reported that Ruffatto sold another, much more dramatic home in Corona del Mar for $12.1 million to Los Angeles Angels baseball team owner Arte Moreno.

Ruffatto is also a generous philanthropist and regular political contributor, primarily to Democrats, but also to Republicans.

In 2007, he and his late wife Joan gave $5 million to the University of Denver, where their daughter had attended college. Because of the gift, a building in the Morgridge College of Education is now named Ruffatto Hall. In 2009, Ruffatto was named in a Stanford University press release as a major donor to the university’s new $100 million Precourt Institute for Energy. The amount he gave was not disclosed.

Earlier this year, Ruffatto became engaged to prominent Orange County socialite Eve Kornyei. The couple is frequently pictured in charity newsletters and local newspapers attending fundraisers, particularly for the Segerstrom Center for the Arts, in Orange County.

According to records at the Federal Election Commission, Ruffatto contributes to candidates of both major political parties, most recently $4,800 to the successful 2010 US Senate campaign of freshman Colorado Democrat Michael Bennet. But he has also donated in the past to conservative Arizona Republican US Sen. Jon Kyl. In 2007, he gave $2,300 to Hillary Clinton’s campaign for the Democratic Party presidential nomination.

Enzi’s Work

There is no record of any donations to Wyoming US Sen. Mike Enzi. Enzi is a staunch opponent to the Obama administration stimulus program, which in 2009 he called “bailout baloney.”

“I don’t think Mike Ruffatto has ever met my dad,” Brad Enzi, 36, said in a recent interview.

The younger Enzi, a 6-foot, 8-inch former University of Wyoming walk-on basketball player, said that he and his senator father have never discussed the North American Power Group stimulus grants.

US Sen. Mike Enzi with his son Brad Enzi (right). Brad told WyoFile he spent a majority of his working time on the stimulus project meeting with others to try to understand the public perception of carbon storage. (Photo from Sen. Enzi's Facebook profile)
“My dad and I have a very Chinese Wall relationship when it comes to what I do for a living and what he does for a living. We don’t even talk about energy policy … it’s always been a rule that my dad and I have, because it is one of those things you can look around and see abused on a constant basis,” Enzi said.

In another way, Brad Enzi — or at least his household — does benefit from his father’s position, as his wife Danielle Davis Enzi is a fund-raising consultant for Senator Enzi’s campaign fund and his leadership PAC, Making Business Excel.

According to the most recent filings with the Federal Election Commission, Danielle Enzi’s company, Enzi Strategies, which she operates out of the couple’s north Cheyenne home, received $70,910 in retainers and commissions from the Enzi political funds from July 2010 to July 2011.

The Federal Election Campaign Act permits such payments to family members as long as “the family member is providing a bona fide service to the campaign and the payments reflect the fair market value of those services.”

Regarding the North American stimulus grants, Brad Enzi said he was unaware of accounting details in the project, including how his $80-an-hour pay rate was determined.

He said he receives the same salary from North American Power Group that he did when he joined the company five years ago to promote and develop the company’s proposed Two Elk coal-fired power plant southeast of Gillette in Campbell County.

“I don’t mean to be obtuse,” Enzi said, “but I have no idea how the bills back out. I just turn in my time sheet to Denver. Project administration is handled through that office.”

With Two Elk power plant construction “at a slow point,” Enzi estimated that since August 2010 he has spent an average of 60 to 70 percent of his time on the federal stimulus project “meeting with different groups, landowners, industry groups just trying to get a feel what the public perception of carbon storage is.”

Federal records show that Enzi was paid as much as $17,363.72 in one month — August 2010 — for his reported 182.5 hours work that month on the stimulus project.

In an email response to questions from WyoFile, R. Paul Detwiler, chief counsel for the National Energy Technology Laboratory in Pittsburg, Pa., said that the Department of Energy conducted a budget analysis before North American Power was awarded the grants, as well as a subsequent review by contract specialists at the federal agency.

Detwiler said the budget specialists concluded that “the salary and benefits being paid to Mr. Ruffatto and Mr. Enzi are appropriate for their skill set and the work they perform.”

Comparison To UW Carbon Storage Project

The University of Wyoming's carbon storage study, seen here, is similar to the Two Elk project. Both receive federal funds to search for and study suitable reservoirs for carbon sequestration, but the UW project focuses less of its funding on leadership salaries. (Photo by Meg Ewald and the Carbon Management Institute — click to enlarge)
However, the pay rates are much higher than those of a similar, federally funded ($9,975,000.00) University of Wyoming carbon storage study underway in southwest Wyoming.

The principal investigator of that project, retired University of Wyoming professor and former state geologist Ronald C. Surdam, receives his $210,000 annual salary from state funds, as director of the UW Carbon Management Institute. Surdam, a nationally-recognized expert on carbon sequestration geology, receives no pay from the stimulus grant.

Nor does Surdam’s chief deputy in the project, Shanna Dahl. Dahl said the employee who gets paid most highly with federal stimulus dollars is a PhD research scientist who makes about $110,000 a year in salary and benefits. Dahl said the project is in the process of hiring another scientist to be paid with federal stimulus dollars at about the same pay rate.

The UW project is different from the North American Power Group carbon storage characterization project in that the bulk of the money spent by UW, over $8 million, went directly to the university’s main contractor, the Houston-based drilling company Baker Hughes, Inc., to drill a 13,000-foot deep well near the Jim Bridger Power Plant in southwest Wyoming.

According to Baker Hughes vice president for communications Teresa Wong, the drilling company donated an unspecified portion of its services to the project in kind. “We believe this is a great project for Wyoming and if it is successful, it will help facilitate and grow the CO2 storage industry in Wyoming, assist the coal industry to meet future CO2 targets and will thus create and preserve local jobs,” Wong said.

The Baker Hughes well was completed in August. Now the project is hiring scientists to determine if the Rock Springs Uplift and Moxa Arch deep saline reservoirs there are suitable for permanent CO2 sequestration.

The North American Power Group project is at a much more preliminary stage, with researchers collecting existing subsurface data for the important coal mining area surrounding Gillette. The North American Power Group project hired Montana State University, which helped Ruffatto write the proposal for the stimulus grant, and Stanford University, where Professor Sally Benson, like Surdam at UW, is a leading scientist in the area of geologic storage of CO2 in deep underground formations, as subcontractors.

According to the most recent quarterly report on the project ending June 30, Montana State had received $168,793.39 in stimulus funds since fall of 2009; Stanford had been paid $175,245.43 over the same period.

Employees work the drill at the site of the University of Wyoming's carbon storage study. Since the well was completed in August, the project is now hiring scientists to determine if the Rock Springs Uplift and Moxa Arch deep saline reservoirs are suitable for permanent CO2 sequestration.(Photo by Meg Ewald and the Carbon Management Institute — click to enlarge)
Following enactment of the American Recovery and Reinvestment Act of 2009, the DOE National Energy Technology Laboratory picked 10 proposed carbon storage site characterization studies, including the two in Wyoming, to receive a total of $70 million in funding. A year later, the ten projects nationwide were awarded an additional $5 million each.

“We were very fortunate,” said Ruffatto, a political science graduate of Stanford University and law school alum of the University of South Carolina, “to be chosen among a number of other projects throughout the United States, each one of which is obviously looking at different features, different geologies, the end result of which is going to be to add to the knowledge base and data base that the Department of Energy and others have been trying to promote and hopefully commercialize.”

— Frequent contributor Rone Tempest is a former national and foreign correspondent for the Los Angeles Times. From 2008-2010 he was WyoFile’s editor. He lives in Lander. Also contributing to this story from Orange County, Ca., were Ray F. Herndon and Sarah Tempest.

— If you enjoyed this investigative report and would like to see more quality Wyoming journalism, please consider supporting WyoFile: a non-partisan, non-profit news organization dedicated to in-depth reporting on Wyoming’s people, places and policy.
Salaraies and Fringe Benefits Document (available on WyoFile here).

Republished in accord with WyoFile's republishing guidelines.

WyoFile is a nonprofit news service focused on Wyoming people, places and policy.

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