Special Report: Toxic Power
In 2022, the City of Fairbury contracted with a salvage company to remove several tons of outdated machinery from the now-defunct municipal power plant. The deal was supposed to save the city thousands of dollars in decommissioning costs. When that company was finished, they left behind unpaid bills, a health hazard, an environmental crisis and many questions, not the least of which is, how could something like this happen?
This “Special Report” is the result of two years of investigation by The Fairbury Journal-News.
Part 1: A Timeline of Disclosures
By Gordon Hopkins
The City of Fairbury’s Municipal Power Plant has, on occasion, been a lightning rod for criticism of city government, as evidenced by a Letter to the Editor published in The Fairbury Journal on December 6, 1923. In that missive, Lester L. Wrestling, an engineer himself, commented on the city’s announced plan to hire and engineer to survey the plant, “However, in one sense, the city was unfortunate in gaining possession of the heirlooms in the power plant, for the old machinery has naturally influenced the purchase of later machinery. The idea of employing a consulting engineer of the caliber is excellent, but very belated. Had the growth of the Municipal Plant been supervised by technical men, there would not be today a museum of steam boilers with exhibits of so many types.”
Wrestling’s criticisms would prove to be prescient, although it would be another 94 years before concerns about out-of-date equipment would ultimately doom the city’s sole source of self-generated electricity.
Closing the Plant
For decades, Fairbury self-generated, as many utilities had done. Starting in the 1980’s, however, it was considered more economical to purchase power from WAPA (Western Area Power Administration) and MEAN (Municipal Energy Agency of Nebraska), a member of the Southwest Power Pool (SPP), which oversees the power grid of an area stretching from Oklahoma to the Canadian border.
By 2017, the power plant had been relegated primarily to back-up use. If there was a disruption of the flow of electricity, Fairbury’s power plant would come online until the city’s primary source of electricity was restored.
The power plant was shut down on February 28, 2017, because the city’s insurance carrier, Traveler’s Insurance, canceled coverage for the plant, citing “obsolete equipment.” One of the generating units in the plant was from 1948 and generated four megawatts. Another was a 1964 unit that generated 10 megawatts.
According to then-city administrator Collin Bielser, the city was unable to find another carrier willing to cover the machines. Bielser said some insurance carriers had provided a list of repairs and upgrades. The city would have to either bring the power plant back online or decommission it.
In the end, the cost of upgrading was considered prohibitive and so the plant remained closed. The six employees that kept the plant operating were let go, although they were given the option of applying for other jobs with the city.
At the time, MEAN had been paying the city $360,000 per year for having the power plant available. That payment ended when the plant shut down, although Bielser noted the total compensation to the six employees was approximately $475,000.
As for decommissioning, it would be another five years before that would be addressed.
Selling Power Plant Assets
In 2022, a new city administrator, Matthew Jacobs, came on board. His position was that the machines remaining in municipal power plant no longer served a practical purpose and could constitute future liability and maintenance expense. He recommended selling the machines.
According to a memorandum from Matthews, “It is believed these assets could potentially generate at least $120,000 dollars.”
There was also a large oil storage tank across the street from the municipal power plant. Matthews recommended removal of the tank as well. On January 25, 2022, the Line Department received a quote of $129,651 to move, clean, and demolish the tank.
Matthews wrote in a memo to Fairbury Mayor Spencer Brown and the city council, “Selling this non-performing asset with other non-performing assets would create significant value for the City of Fairbury.”
If the City of Fairbury received funds from the sale of these non-performing assets, Matthews proposed they be immediately diverted to facilitate the procurement of newer equipment and vehicles and the disposal of aged equipment and vehicles. The administrator instructed department heads to create a list of items that are in need of replacement. He noted, “Better equipment and vehicles means less repair time, less repair cost, and more time for employees to be engaged in value adding activities that directly benefit the citizens of Fairbury.”
City Councilmember Bradley Kuzelka had been critical of the decision to close down the power plant and was dubious about finding a buyer. At a meeting of the City Council on Tuesday, August 16, 2022, he said, “I just find it interesting that someone can buy our turbine parts or whatever. We can’t use it, but they can buy it and they can use it.”
Councilperson Brian Schmidt said, “I think there’s a pretty good chance that it’ll get used in another country where there’s a lot less regulation.”
Mayor Spencer Brown confirmed this, saying he believed the turbine was destined for India.
Despite his stated misgivings, Kuzelka voted with his fellow council members to approve Resolution 1199, which authorized the sale of three steam turbines, three generators, thee condensers, three boilers, one compressor and one oil tank, all from the power plant, to be sold as a lot, for not less than $120,000.
Industrial Engineering Solutions
Although the company name was not mentioned during the city council meeting, the city had already been discussions with a company to purchase the power plant assets.
That company was Industrial Engineering Solutions (IES). The man who professed to own that company called himself James Daniels, although FJN would later learn that was not the man’s real name.
According to Mayor Brown, the initial contact was made by IES via telephone with utility superintendent Nate Francis, “Initial conversation was an inquiry if we were interested in selling the equipment.”
Mayor Brown did not know the date of the phone call but an email from IES to Francis on July 6, 2022, said, “Hey, James Daniels owner of industrial engineering Solutions LLC good talking to you today Nate.”
On July 19, 2022, IES made an offer to Nate Francis via email for $40,000 for two turbines.
On July 20, 2022, IES emailed Francis, “I believe I am going to write up a proposal for 120,000.” Later that day, IES sent a proposal for $120,000 for all the contents of the power plant.
On August 5, 2022, IES sent a revised proposal for $120,000 for the items as described in the final contract.
On August 8, 2022, Francis emailed the city administrator, saying the offer from IES was only good until September 16.
None of these offers were mentioned in the August 16 city council meeting. Two members of the city council, Kelly Davis and Bradley Kuzelka, later confirmed they were never shown those offers, nor were they brought before the council for a vote. Other members of the council did not respond to questions from FJN about the matter.
Those offers were also not mentioned in the lawsuit filed a year later.
The city council did vote on a resolution authorizing the sale of the power plant assets on August 16, 2022.
Red Flags
IES’s proposed contract offered $120,000 for three steam turbines, three generators, three condensers and one air compressor. Also included in the price was the draining and demolition of the oil storage tank. The contract agreed to follow all OSHA (Occupational Safety and Health Administration) standards.
On October 13, 2022, Mayor Brown signed the contract with IES.
Although IES is a Texas-based company, the phone number on the contract has a 212 area code, which is central Manhattan, New York City. FJN called the number and got an electronic tone, similar to fax machine.
The business address on the contract is in Riverside, California. The area code on the contract was 92505, which does not match the street address. An internet search of the street address with the correct zip code showed it to be the location of a beauty parlor.
Also sent by IES along with the contract was a document indicating IES had a policy with Evanston Insurance Company, a division of Markel Insurance Group LLC, covering a policy period from May 18, 2022 until May 18, 2023.
The street addresses on the contract and the insurance form did not match. According to Mayor Brown, the city did not call Markel to verify the insurance policy. According to Mayor Brown, the city had been contacted by other companies about the power plant but they wanted to be paid for cleaning out the building. IES was the only company that offered to pay for the contents. On August 22, 2023, Brown said, “And no there wasn’t significant negotiation (with IES)… why would there be? They were offering to pay us for what another company wanted to charge us big money for.”
“I voiced opinions about my doubts of the voracity (sic) of the situation at meetings before the sale,” Kuzelka told FJN. “If everyone else was going to charge us to clean up the power plant why would this guy pay us to do it?”
FJN has asked Spencer Brown on multiple occasions what due diligence was done by the city to ensure the company was reputable and would complete the work as contract. As of press time, he has not answered. However, in a Facebook post on November 20, 2024, Brown wrote, “They had a website, and they knew all about our power plant siting (sic) other jobs just like ours they had completed. They said all the right things and had all the right paperwork. The jobs site was dirty, of course, it was a demo job! There was wire, concrete, tile, steel etc. Yes, they were a bad crooked contractor. Not the first time anyone has ever been screwed by a bad contractor. Ever heard the expression, hindsight is 20/20? We have a court ordered judgement (sic) against them and the EPA is also after them…so again let’s keep beating a dead horse.”
Brown confirmed to FJN on May 15, 2023, that he did not show the contract to the city attorney before signing it.
What Happened When IES Arrived in Fairbury?
James Daniels and another man calling himself Jimmy Daniels arrived in Fairbury sometime in October of 2022 and began recruiting locals to work for IES as subcontractors.
FJN has identified and spoken to some Jefferson County residents who were hired by IES. They have asked not to be identified on the advice of legal counsel and citing a fear of retribution from city officials.
One subcontractor said he was told IES had a staff but they were unavailable for this particular job, “The whole time that we had been working down there was because his crew was being held up in New Mexico. Like, they were in jail for something, they got in a bar fight or something. There was a bunch of different rumors going around. So they weren’t able to make it. So, we were, like, to fill in the gap until they got there.”
According to those subcontractors, the job began October 13, the same day the contract was signed.
The subcontractors were paid in cash. One told FJN, “There was no application. No, nothing. Everything was under the table. But I was assuming everything was still aboveboard, as far as, you know, like, legit, because they had said that they bought the rights from the city.”
On December 12, 2022, just two months after work had begun, subcontractors arrived at the power plant to discover IES had left town without paying their last two weeks of wages.
How Did FJN Find Out?
In January of 2023, FJN received the first of three anonymous tips about the power plant. The first tipster said IES had left town without draining and demolishing the storage tank, as required by the contract.
FJN asked about the storage tank and was informed demolition had been completed, not by IES but by another company, Midwest Torching & Maintenance LLC. Mayor Brown called the company a “subcontractor.”
Public records show Midwest Torching was paid $6,000 on February 21, 2023, by the City of Fairbury and not by IES.
On January 10, 2023, Kurth Brashear, an attorney with Rembolts Ludtke LLP, which represents the City of Fairbury, sent the first of two demand letters to IES requesting payment.
No response was ever received.
Near the end of April, FJN received a second anonymous tip, this time claiming IES had “robbed” the power plant. The following conversations between then-mayor Brown and FJN were conducted via direct messaging on social media.
May 1, 2023: FJN asked, “Can you tell me what work is left to be completed?”
Brown said work in the power plant had not been completed but did not provide details, “I don’t have a list right now.”
May 2, 2023: FJN obtained a copy of the contract but was unable to reached anyone with IES. FJN advised Brown of this and asked, “When was the last time you or someone from the city has been in touch with them?”
The mayor answered, “I would need to ask.”
May 3, 2023: FJN asked the mayor, “I still haven’t been able to contact IES. Do you have an email? Did you find out when the last time the city had any contact with them was? When was the last time they actually did any work at the power plant? Do you have any idea how much work there is left to do? Who is the city’s point of contact for IES?”
Brown answered, “I do not have the list or a date for you yet, I apologize I have been very busy with other events and planting season (my day job). I will let you know when I can.”
May 9, 2023: FJN sent several questions about progress on the cleanup and also advised the mayor of a number of discrepancies with the contract, including that, despite the address, IES was not registered with the California Secretary of State.
Brown responded, “I’ll get back to you.”
May 10, 2023: Brown released a public memorandum that read, in part, “To date, IES has failed to fully perform its contract obligations. I was in contact with Mr. Daniels personally on numerous occasions and he continued to assure me IES would perform. That has not happened. The City sent a demand for performance to IES, advising that it would be responsible for costs incurred in completing the work if IES did not perform, but that did not achieve the desired result. The City mitigated the main concern — used oil on the plant premises that could create environmental concerns.”
June 13, 2023: FJN asked Brown for more details about how IES had “failed to fully perform its contract obligations” as stated in the memo.
Brown responded, “Staff has not done an exact inventory of what is still yet to go so it would be assumption until we can do that.”
June 14, 2023: When asked if anything had been taken from the power plant that should not have been, Brown reiterated, “Again, staff has not done an inventory on every single little item.”
June 29, 2023: FJN again asked if an inventory had been completed. Brown responded, “Has not.”
Through a Freedom of Information Act (FOIA) request, FJN obtained photos taken by city staff from inside the power plant building after IES had left. Those photos showed the building was empty, apart from some trash. Nothing had been left behind.
Scrap
At the beginning of July, 2023, FJN received a third anonymous tip, this time claiming the power plant had been stripped of copper, brass and other valuable scrap.
Subcontractors for IES reported being told IES had purchased the entire contents of the power plant building, not just the machines specified in the contract. They were instructed to remove all copper and brass, which would then be sold by IES to a metal recycling business in Lincoln. One said he was told to, “Take all these panels off and then get any kind of brass or copper that’s inside there.”
While the contract was specific about what could be taken by IES and scrap metal was not mentioned, Brown told FJN on July 23, 2023, that he was aware IES had removed the scrap, “We monitored what went to scrap and I have been in contact with the company who paid them for their scrap materials.”
Brown called the scrap, “a byproduct of them removing the listed items.”
When asked if the knew how much the recycling company paid for the scrap metal, Brown said, “Ask IES I suppose. They weren’t required to submit receipts or anything to the city.”
Although Brown admitted he did not know how much the scrap was sold for, he told FJN on July 10, 2023, “I have a decent idea of what the prices of scrap are. That being said, I would have to take dozens of loads to even compensate for staff wages. Plus trucking to Lincoln or Omaha.”
What Happened to the Machines?
According to the subcontractors, two turbines and one generator were taken from the power plant and sent to Texas, along with five condensers and two heat exchangers. One generator went to California. One transformer went to South Carolina.
On August 15, 2023, FJN asked the city for the serials numbers of all the machines from the power plant. FJN received only two:
Air cooled generator – serial #1S70P21
Current generator – serial #151-5
According to Brown, the remaining serials numbers were either “not recorded or not legible” in the city’s records.
Lawsuit
On September 29, 2023, the City of Fairbury filed a lawsuit against IES.
As noted above, the resolution authorizing the sale of the power plant assets set a deadline of September 8, 2023, by which time, if no offers for the assets had been received, then they could be sold, “without further action by the Mayor and City Council.”
The lawsuit stated, in part, “The City did not receive any offers to purchase the Property by the September 7 (September 8 in the resolution), 2022 deadline set forth in Paragraph 4 of the Resolution.”
Again, as noted above, the city actually did receive offers prior to the deadline but did not show those offers to the city council and did not mention them in the lawsuit.
FJN asked both the mayor and city attorney for clarification on multiple occasions. No response has ever been received as of press time. FJN also reached out to city council members. Kuzelka was the only one to respond but did not have an explanation for the discrepancy.
The city was unable to locate anyone from the company to serve any paperwork.
On December 9, 2023, a process server attempted to deliver the summons to the company’s registered agent, Tony Mitlo, at the address registered with the Texas Secretary of State.
The process server, Paul Brennan with Lone Star Attorney Service, indicated the family living at the address did not know the defendant, “I was told by the father of the family that they are new to this house and that they are renting it. Since they were new, he did not know whether the recipient was a former renter.”
On January 18, 2024, District Court Judge Julie Smith approved a motion for substitute service.
In some cases, the law requires that certain documents, such as a summons, be served on the other party. The court will allow alternative methods of service if service cannot be made by traditional means.
No one representing IES appeared for any court hearings and the City of Fairbury was awarded a judgment of approximately $144,000 against IES. Kurth Brashear announced the decision at a meeting of the Fairbury City Council Tuesday evening, July 16, 2024, “The question now is collections and how can we enforce that and we will be looking at ways to try and achieve some collection on this, but that will involve out-of-state accounts and efforts to enforce that judgment in other jurisdictions.”
As of press time, no monies have been received by the city from IES.
What the City Hasn’t Done Yet
The City of Fairbury holds several insurance policies with EMC Insurance Group, Inc. However, per Mayor Brown, no claim has ever been filed in connection with the power plant and IES.
The Government Crime and Fidelity Coverage requires proof of loss be submitted within 120 days of discovery of the loss. When asked on September 4, 2024, if he was aware of the 120 day reporting requirement, Brown did not respond.
The city has also not filed a criminal complaint against IES. It should be noted that, in Nebraska, the statute of limitations for theft by deception is generally three years and it is now more than two years since the loss.
Brown has repeatedly told FJN he considers this matter a civil one more appropriately handled in civil court.
Kelly Davis, the man who defeated Brown in the race for mayor on November 11 of this year, holds a different view. Davis advised FJN that one of his first actions upon taking office will be to take the matter up with the county attorney and ask about possible criminal charges, “They stole from us, in felony amounts, and they should be punished.”
While the money lost is a major concern, it is not the only concern…
See also:
