Day three: Working in tandem

FAIRMONT, MINN. -- Buffalo Lake Energy had a problem.

Earlier this year, the company feared that its plan to build a large ethanol plant in this slowly shrinking prairie town was in danger of getting derailed by the state's environmental rules.

Help came fast.

Sheryl Corrigan, then the commissioner of the Minnesota Pollution Control Agency (MPCA) sent the company a letter it could show to financial backers saying that the agency, which enforces environmental statutes, intended to issue permits for the plant by May 24.

Though she included some generic cautions about potential delays, Corrigan didn't mention concerns held by the agency's staff about errors and omissions in the company's paperwork, and she purged details about work still needed to be done.

Corrigan defended the letter as routine, noting that the competition to open ethanol plants is fierce and that states such as Iowa and South Dakota seem to issue permits quicker.

But others say that in the high-stakes rush to cash in on ethanol, national, state and local leaders are kowtowing to King Corn -- even if it means approving plants that are draining nearby wells, tolerating potentially harmful wastewater and permitting plants that burn coal instead of cleaner-burning natural gas.

In Granite Falls, Minn., state officials let a company open an ethanol plant last year knowing that the well water it would need to operate might last only a few years, according to regulators and state records. Now, with the aquifer draining even faster than expected, the company is exploring the use of twice as much water from the Minnesota River so it ostensibly can double production to 100 million gallons of ethanol a year.

In Aberdeen, S.D., a proposal by Glacial Lakes Energy to build a large ethanol plant drew strong opposition from some farmers in the throes of a severe drought. But county commissioners approved a zoning change that enabled several local individuals, including farmer Levern Didreckson, to sell land to the proposed plant's developer.

After the vote, Julie Zastrow of Aberdeen had to be restrained by her boyfriend as Didreckson left the county courthouse. "Traitor!" she shouted.

In late June, Zastrow and about 40 other people from the Aberdeen area filed a lawsuit in an effort to stop the project. Glacial Lakes later announced plans to build its plant about 14 miles west of Aberdeen.

In Fairmont, Mike and Gina Borchardt, who live near the Buffalo Lake Energy site, pushed unsuccessfully for an environmental impact study, citing concerns that dust and fumes from the plant would worsen their teenage daughter's asthma and deflate their property value.

Mike Borchardt said Sen. Julie Rosen, R-Fairmont, told him that she would hold him responsible if the plant failed to get its permit. Rosen acknowledged making the comment, saying she believes Borchardt was retaliating against the ethanol plant because of problems he's had with an adjacent soybean-crushing facility.

The MPCA is taking steps to speed up the time it usually takes ethanol plants to get permits. This spring, Corrigan established a new ethanol team to work with the industry with a " 'We are one' ethic," state records show. The agency also is considering rule changes that could make it easier for plants that do not meet state water-quality standards to get permits.

Sen. John Marty, DFL-Roseville, said the ethanol industry is using the promise of jobs and energy independence as cover to weaken state environmental laws. "Ethanol is big business, and they've got political clout," said Marty, chairman of the Senate Environment and Natural Resources Committee.

Marty said he was disgusted to learn that Corrigan had written a letter on Buffalo Lake Energy's behalf as her staff complained about the company's proposal. "It's absolutely inappropriate," he said.

But other state officials say the steps they've taken to help the ethanol industry are appropriate and pose no threats to the environment or public health.

"Everything we've done we can back up with data," Corrigan said. "Now, whether folks agree with the interpretation of the data ... is another matter."

Rep. Bob Gunther, a Republican from Fairmont who is chairman of a House committee on economic opportunity, said many state regulations were set before technological improvements cleaned up ethanol plant emissions and increased their efficiency. He said Minnesota's permitting process is too onerous, making it hard to compete with states such as Iowa, the nation's No. 1 producing ethanol state.

Pollutants then and now

Ethanol producers boast that their corn liquor can help save the planet. They say they brew a clean-burning fuel from surplus corn, bringing badly needed jobs to forlorn farm towns.

But ethanol plants are also refineries. State records show that the plants sometimes spill or discharge wastewater laced with organic materials that can lead to fish kills. Some discharges also occasionally contain chlorides exceeding the standards developed to protect aquatic life, and some facilities may discharge sulfates at levels that can sicken some livestock and wildlife.

MPCA officials say the industry's air-pollution record has improved markedly since 2002, when the EPA entered into an agreement with a dozen Minnesota ethanol plants requiring them to reduce their emissions.

But an MPCA environmental bulletin last month said the plants may still be emitting harmful pollutants. "It is clear that further, systematic testing is necessary to thoroughly characterize the complex gas stream from these facilities," the bulletin said.

Corrigan said it takes about five months for a typical ethanol plant to go through Minnesota's environmental review process and get the air and water permits required to start building.

Iowa permits have been issued in as little as a month, said Mike Rutledge, environmental manager for ethanol plant builder Fagen Inc. But with plants increasing in numbers and size, it's taking longer now, even in Iowa, he said, adding that three to five months "is not out of the range of what you see in other states."

Minnesota has extended more incentives to the ethanol industry than any other state. Its early programs are waning, but the plants are now tapping tax waivers in Gov. Tim Pawlenty's rural development program known as JOBZ.

Minnesota's point man for ethanol development is Rocky Sisk, who works with a program called BizNice. He's an MPCA employee, but splits his time with the Department of Employment and Economic Development (DEED). Sisk says he advises companies on getting through the permitting process in ways that limit an ethanol plant's impact on the environment.

Some of his colleagues in state government see him mostly as an industry booster. "His position, whatever that is, it's truly rah-rah-rah, let's move forward on it," said Jay Frischman, a hydrogeologist with the Department of Natural Resources (DNR).

Sisk said that one of his first tasks at the MPCA was to work on legislation sponsored in 2004 by Gunther and Rosen. They wanted to help VeraSun Energy of Brookings, S.D., build an ethanol plant that would produce 100 million gallons a year.

At the time, Minnesota required a full environmental-impact study for any rural ethanol plant that would produce 50 million gallons or more in a year. Because such studies are expensive and risky, none of the larger plants got built. Gunther and Rosen drafted bills to raise the hurdle and asked the MPCA to review it. "They couldn't come up with one thing" to worry about, Gunther said.

Corrigan, a former 3M Co. manager who went to work for Koch Industries in August after leaving the MPCA, said her agency did not oppose the bill.

But Gunther said Corrigan "amended" it, suggesting he raise the threshold from 100 million to 125 million gallons. He did, and the law took effect in May 2004 -- just in time for the ethanol boom.

'Political pressure is a fact'

The MPCA staff has struggled under growing pressures to get plants permitted quickly. It met with agency management three times in 10 days this spring to voice concerns.

According to notes made by management, staffers were worried about the industry's rapid growth and noted that the relatively high cost of natural gas was pushing some new plants to burn coal. They cited the huge volume of water that ethanol plants use, and they complained of pressure to issue permits in a hurry even when the companies are slow to provide information.

"Political pressure is a fact that cannot be ignored," the staff said. "End runs are occurring to the Commissioners Office."

Asked about those comments, Corrigan said: "I get calls all the time, not just from ethanol, but from anyone who has an issue."

The MPCA staff meetings started three weeks after Buffalo Lake Energy, worried about project delays, sought help in a March 6 meeting with Corrigan and Matt Kramer, then-commissioner of the state Department of Employment and Economic Development.

Buffalo Lake Energy needed a variance from water-quality standards. But such exceptions are rare and can mire a project in contentious public hearings.

Sisk notified colleagues in an e-mail that "the company was very unhappy" with the permitting schedule. Corrigan outlined some options, Sisk said, including the MPCA's attempt to get the variance request to the EPA "right now, even before we have public noticed it and before it has gone to our board." Sisk distributed a draft letter committing the MPCA to approve the project and issue permits before its June financing deadline.

Greg Kvaal, an MPCA air engineer who oversaw the Buffalo Lake Energy permit requests at the time, expressed misgivings. "Just for the record," Kvaal wrote, "I would feel much more comfortable committing to a tight schedule if ... we felt that the Variance would even be defensible."

Regulators at the MPCA and DNR had criticized Buffalo Lake Energy's permit applications. They complained that the company or its consultants missed deadlines, made errors and initially failed to perform adequate tests of the water supply.

MPCA management pushed the staff to process the applications, Kvaal said in an interview. "What we thought we were trying to do was get permits issued that would be protective of the environment. And it seemed to be that there was some pressure ... just to get this thing done," he said. "It was almost surreal."

Two days after meeting with company officials, Corrigan agreed to sign a letter saying they were taking the steps to get the permits in time.

She noted in an e-mail to Sisk that she deleted from the letter "the paragraph regarding data still needed." Those details should be sent separately to Scott Pearce, president of Biofuel Solutions, the parent company behind the proposed plant, she said.

"The initial draft had all sorts of stuff rolled together, and it was confusing," Corrigan explained in an interview.

She noted that her letter did contain "general caveats" noting that the agency would have no control over the timeline if the public objects.

"Hopefully, this letter will allow you to base your economic decisions on the most up to date information available," it says. "The MPCA is committed to making this project work in Minnesota, and will be glad to assist you in any way we can to make that happen."

A process postponed

Corrigan arranged a special hearing in May before the MPCA Citizens' Board, which evaluates environmental review applications.

Though the MPCA staff had recommended approval of Buffalo Lake Energy's permits, the board postponed its decision after the Minnesota Center for Environmental Advocacy (MCEA) complained that the process was rushed, the application contained errors and the test of the water supply was inadequate.

Pearce said in an interview afterward that the delay might cost the company about $6 million. Buffalo Lake Energy skipped the board's June meeting and tried again in July.

This time, dozens of other residents and local politicians attended the hearing to support the plant and the jobs it promised, but the board postponed its decision again, saying company data had come in too late for the public to respond.

"Minnesota isn't a very business-friendly state," Pearce said afterward.

After the July meeting, Dr. Dan Foley, chairman of the Citizens' Board environmental review committee, assured Rosen that Buffalo Lake Energy's proposal would pass at the next meeting. He said the delay was meant to head off lawsuits alleging that the public didn't have enough time to respond.

Brad Moore, a longtime DNR employee who replaced Corrigan as MPCA commissioner in early August, noted approvingly in a recent interview that the MCEA and Buffalo Lake Energy negotiated an agreement calling for more environmental protections. The board approved the plant's permits Aug. 22.

Asked why MPCA's staff didn't negotiate the more protective terms, Moore said that internal disagreements about water-quality rules got in the way. "That's an area we can improve on. No doubt about it," he said.

Moore added that he does not want to stifle his staff. "Since I've been here, there are legitimate staff disagreements or [differing] views related to the science and permitting [of ethanol plants], and I encourage staff members to state their views," he said. "A diversity of opinion is important."

Moore declined to comment on the letter that Corrigan wrote for Buffalo Lake Energy. But he did note that statutes governing the agency require it to give "due consideration" to business concerns. The Legislature anticipated the tension between regulation and business growth, Moore said. "That's the great balancing act that I have to do as a commissioner."

MPCA staff estimated that 10 new or expanding plants may need water-quality variances like the one that tied up Buffalo Lake Energy, and industry representatives kept a close watch on the process. MPCA management suggested that one way to deal with the pending cases might be to hire a consultant to seek rule changes "to eliminate the need for variances," records show.

Myrna Halbach, who heads the MPCA's new ethanol team, said variances should be rare. If it appears the agency will grant a number of them, she said, then it should consider whether the rules are appropriate.

Janette Brimmer, MCEA's legal director, characterized that strategy this way: "If you can't keep the water clean, just change the standards of cleanliness!"