Migrating from time machine backup on a Time capsule
I have WiFi off. I can access the time capsule using air port utility. Neither device is connected to the internet.

You say you have WiFi off.  Does that mean you are hard wired to the Time Capsule via LAN?  You may need to verify that your Mac can indeed see the Time Capsule.  That part of your question is a bit confusing.
You may wish to try again from scratch using macOS Recovery.  See Apple support for more details.  This will help you to reinstall macOS and restore from a Time Machine backup.

macOS Restore
Hold down Command-R or one of the other macOS Recovery key combinations on your keyboard immediately after pressing the power button to turn on your Mac, or immediately after your Mac begins to restart. Continue holding until you see the Apple logo or a spinning globe. Startup is complete when you see the utilities window:

After starting up from macOS Recovery, select from these utilities, then click Continue.
From there follow the onscreen instructions to restore from backup or even reinstall macOS then restore from Time Machine.