A Minnesota ethanol plant has been hit with an $800,000 pollution penalty, the latest in a multi-year regulatory crackdown that state officials say appears to be changing the industry's ways.

Bushmills Ethanol Inc. of Atwater, Minn., was fined for illegally discharging salt-laden wastewater into a ditch and then lying about it, the state Pollution Control Agency said Friday.

It is the third-highest penalty against a Minnesota ethanol producer in six years, a period when 13 of the state's 21 plants got caught polluting the air or waterways, and sometimes both. Altogether the penalties have exceeded $5.1 million.

Yet as the state collects the latest fine, a top state regulator said he is hoping the industry's chronic environmental problems are behind it.

"We don't have any other large enforcement actions going against ethanol plants," said Jeff Connell, manager of compliance and enforcement for the MPCA's industrial division. "They may have turned a corner, or at least we are hopeful they have."

The industry's environmental problems mushroomed as production grew from almost nothing in the early 1990s to more than 1 billion gallons last year, creating an industry that now consumes a quarter of the state's corn crop.

"I think the industry grew very, very fast,'' said Brian Kletscher, CEO of Highwater Ethanol of Lamberton, Minn., whose plant paid a $150,000 pollution fine last year. With the speedy growth, and sometimes new regulations, "it was hard to keep up," he added.

In the case of Bushmills Ethanol, the farmer-owned plant was trying to reduce pollution when it got into trouble. In 2008, it completed a $2.2 million water treatment plant, hoping to solve one of the industry's common problems -- high levels of salts and other pollutants in its effluent.

At first, the plant reported that samples of the effluent were "all within compliance levels."

The next year, the plant changed its story, eventually conceding that it had selectively sampled during favorable discharge periods and that overall the plant "has not been able to meet effluent standards" for salt and minerals that are harmful to aquatic life, according to a stipulation the company signed in March.

Connell, the state regulator, said problems with treatment technology are not uncommon, and that plant officials who inform the agency can get help. He said most plants have improved communications with regulators after a two-year outreach program by three agency officials.

Six ethanol makers also allowed the state to conduct intensive plant inspections with the understanding that penalties could be avoided if they fixed any pollution problems that were spotted.

"By and large, it was pretty successful," Connell said. "The only thing we were disappointed about is that we would like to have much higher participation than six."

That kind of friendly regulatory approach won't happen if the agency isn't told the truth. One ethanol maker landed in federal court last year and pleaded guilty to criminal charges for faking monitoring data.

Connell said Bushmills' false statements didn't result in criminal charges partly because of a legal nuance -- it discharged into a ditch, not a "navigable waterway" that would invoke federal jurisdiction. Bushmills officials did not return calls seeking comment.

Tim Rudnicki, executive director of the Minnesota Bio-Fuels Association, said that all eight ethanol producers who are members of the year-old trade organization participated in the MPCA's outreach program. Some of them are now discharging significantly less than would be allowed by their state permits, he said.

It's a goal that "many have taken to heart," he said.

Some plants, for example, are producing ethanol by recycling their process water, eliminating discharges. Others are capturing waste heat and reusing it instead of sending it up the smokestack, he said.

Bushmills is not a member of the association.

Kris Sigford, a policy advocate for the Minnesota Center for Environmental Advocacy, a nonprofit law firm that has urged the MPCA to take a tougher stance with polluters, said the threat of fines appears to be prodding the plants into compliance.

"I was surprised at the size of fine," she said of the Bushmills penalty. "They've been going after those facilities and issuing substantial fines."

MPCA Commissioner Paul Aasen said environmental infractions give polluters an advantage over their competitors.

"There are many companies that follow the rules to protect our air, water and land, and we applaud them," he said. "But when companies break the rules they not only harm our natural resources, they get an unfair competitive advantage and they must be held accountable."

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