The Internal Revenue Service is auditing $445 million of industrial development revenue refunding bonds issued by Campbell County, Wyo., in 2007 in connection with a waste-coal power plant now set to be completed in 2013, five years later than originally proposed.

Carol Seeger, the deputy attorney for Campbell County, said the county is cooperating fully with the IRS during the audit and has received indications that the agency is satisfied with the information they have received.

“We’ve responded to all the requests,” she said. “[IRS agents] went out and visited the project site, and my understanding is that they’re happy.”

In the Oct. 20 letter the IRS sent the county announcing the audit, the agency did not say it was looking into any specific issue. But Seeger said the lengthy history of the project may have attracted the IRS’ attention.

“One of the things that might have prompted the audit was the duration of the project,” she said. “By anyone’s estimation, it’s gone on for quite awhile now.”

The IRS also said in the letter that at that time it had no reason to suspect the bonds violate the tax code.

The refunding bonds were issued in November 2007 to refund five earlier bond issues sold between 2000 and 2006. Brad Enzi, vice president of government affairs for North American Power Group, which is building the Two Elk project, said this week that it was supposed to be finished in 2008. However, environmental groups began filing legal challenges to stop the project soon after the bonds were sold.

“It was originally scheduled to be done in 2008, but there were some legal challenges that slowed construction,” he said. “The bonds are still held in escrow right now.”

In December 2007, the Sierra Club and Powder River Basin Resource Council filed a complaint asking the state to review the validity of an air quality permit given for the project. The permit expires every two years unless the project is moving forward. The permit for the project was granted in 1998 but expired with the lack of progress and was later reinstated.

The legal dispute is still ongoing. In August, the U.S. District Court of Wyoming dismissed the Sierra Club’s most recent complaint, filed in January, which claimed an expired air permit should prevent construction. Elena Saxonhouse, a staff attorney with the Sierra Club, said the organization plans to appeal that ruling to the U.S. 10th Circuit Court of Appeals today.

But the Two Elk project has had trouble meeting deadlines, apart from the litigation. In 2003, Wyoming Gov. Dave Fruedenthal withdrew his support from the project after it stalled and the state Environmental Quality Council then revoked its air permit. The project later regained the permit and Freudenthal renewed his support but is closely watching its progress.

After granting $109 million more in tax-exempt bond authority in 2005 for the project, the governor warned that the authority and his support for the project were contingent on continued progress.

“Should you fail to make the state deadline — one which you have been aware of for some period of time — I would be disappointed to see you attempt to use this allocation as leverage to obtain either an extension or re-issuance of your air quality permit,” he wrote in a letter to the NAPG.

As planned, the project would consist of a number of coal-fired power plants that would take so-called waste coal from nearby mines. Waste coal consists of the remnants of the coal mining process that are not high enough quality to be sold to traditional coal-burning plants.

Kutak Rock LLP served as bond counsel on the refunding bond deal, which was underwritten by Citi. Michael Reppe, a partner with Kutak who is representing the county in the IRS audit, declined to comment.

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