Early last year, Deschutes County signed a potentially lucrative contract with a California renewable energy company that promised to convert landfill waste into ethanol, a green fuel project that looked to turn trash into cash.

But a Bulletin investigation shows that Waste to Energy Group, the company that has promised to convert Knott Landfill’s garbage into usable liquid fuel, sold its green energy plan to county commissioners with inflated claims about potential buyers. The investigation also finds issues with an independent review, and details the involvement of former Oregon first lady Cylvia Hayes.

In January 2014, Waste to Energy Group signed a 15-year deal with Deschutes County to install a steam boiler and fuel collection system at Knott Landfill east of Bend. Under the proposed plan, Waste to Energy would inject steam under the landfill to speed up the creation of gas that organic materials in landfills release.

The plan faced little organized opposition or negative feedback from Bend residents from when it was proposed in 2011 until its approval three years later, and was billed as a win-win for the county: Waste to Energy was responsible for the estimated $20 million startup costs. Deschutes County was, in turn, guaranteed at least $240,000 annually or 4 percent of gross profits.

Waste to Energy and investors would make their money collecting the landfill gas, refining it into ethanol fuel and selling it on the open market.

Inflated expectations

Before Deschutes County went into contract negotiations with Waste to Energy Group in July 2013, the county hired a third party, HDR Engineering, to conduct an independent feasibility study.

During that review, Waste to Energy Group CEO Lawrence “Randy” Lutz gave a list of three potential buyers — the Northern California Power Agency, Noble Americas Energy Solutions, and Direct Biogas — for the pipeline-quality natural gas the project was expected to produce. (Waste to Energy later decided to refine the methane gas into ethanol based on the market conditions at the time.)

Lutz told HDR Engineering that he had a draft gas purchase agreement with Northern California Power Agency. But the agency told The Bulletin no such agreement existed and that it was unaware of the Knott Landfill project.

Jane Cirrincione, an NCPA spokeswoman, said the agency talked with Lutz about a biomass project in Gridley, California, but had no knowledge — let alone a draft purchase agreement — of a plan to buy gas from Knott Landfill in Deschutes County.

Cirrincione gave The Bulletin the company’s documents that show NCPA had early interest in Waste to Energy’s Gridley project.

“It notably does not reference Deschutes County/Knott Landfill as being part of that agreement,” she wrote in an email to The Bulletin.

As for Direct Biogas, The Bulletin could find no company under that name. But Bill Hanck, an energy consultant, said a former company of his that no longer exists, Directed BioGas, was a potential green energy broker — not a buyer — for Waste to Energy.

“That’s pretty typical for a project like this when you’re trying to change the tires on a car that’s moving rapidly down the highway,” Hanck said about Directed BioGas being listed incorrectly as a potential buyer.

Lutz did provide a letter of interest from Noble Americas Energy Solutions, the second prospective buyer, which was more than a year old by the time of HDR’s review. Noble confirmed the letter was legitimate and that the company did have an early interest in the project.

Lutz denied he had misled Deschutes County while working out his waste-to-energy deal.

“I had ongoing contact with (NCPA) for months,” Lutz said. “I sat in their offices with a consultant multiple times. You’re probably talking to the wrong individual.”

NCPA officials searched former employees’ email to check for references to the Knott Landfill and Deschutes County but could find none, said Mario DeBernardo, another NCPA representative.

Independent review?

HDR Engineering’s review of the project, which cost the county almost $63,000 between December 2012 and December 2013, was not as independent as billed, a review shows.

HDR’s June 2013 report highlighted several aspects of the proposed project that appeared to be inflated, including profit estimates. But HDR said it found no apparent fatal flaws that should prevent the landfill gas-to-energy project from moving forward.

But emails between county employees and Waste to Energy backers show two connections between HDR Engineering and Waste to Energy Group that raise questions about the independence of the feasibility study.

In June 2011, Cylvia Hayes proposed to work for Waste to Energy on a $7,100 contract that largely consisted of access to her environmental network and having her set up public meetings, track public response and create a media outreach plan.

Hayes didn’t respond to requests for comment for this article.

Under the contract, Hayes hired Susan Haupt, then a senior environmental project manager at HDR Engineering, to work with her on the Waste to Energy project, the proposed contract and emails show.

Hayes listed Haupt as a staff member of her company, 3E Strategies, who would take notes at meetings, conduct interviews and organize meetings that included landfill neighbors and members of Hayes’ environmental network. Haupt also wrote the text for the county’s website explaining the project, the emails show.

In an email to The Bulletin, Haupt acknowledged she attended public meetings. She said she had nothing to do with the county hiring HDR for the independent review. Haupt now works as chief environmental officer for the Oregon Department of Transportation. Haupt also noted she left HDR in February 2013, four months before HDR released its review.

According to the county’s own vendor payment documents, though, HDR had already been paid nearly $30,000 by the end of February 2013.

Timm Schimke, director of the county’s solid waste department, said he was unaware of Haupt’s connection to HDR when he chose the company to do the independent review, despite her use of an HDR email and signature on email threads that included Schimke and showed she worked for HDR.

Haupt wasn’t the only person with connections to HDR who was involved with the Knott Landfill project.

Michael Brown, Waste to Energy’s proposed project manager, was a principal at HDR until 2009.

Schimke also said he knew Brown worked for the company but didn’t consider that a conflict of interest.

“I understand that there are a number of aspects of this project that could raise questions to you,” Schimke wrote in an email to The Bulletin. “I can only repeat that I did not feel that Michael Brown’s connection to HDR was … significant as he had been separated from HDR for a number of years prior to his involvement with WTEG, Susan Haupt’s role with the project was very minor, and was also very early in the project.”

And, he said, “The HDR report was, I think, very thorough and very critical of this proposal.”

In its report, HDR noted Waste to Energy Group estimated it would be able to collect 99 percent of the volatile landfill gas, far above the 75 percent collection rate that is industry standard. That figure is important because landfill gas is highly toxic.

“HDR is of the opinion that WTEG may not achieve 99 percent collection efficiency,” the report said.

Waste to Energy Group also assumed it would run its machinery nearly round the clock year-round, with little time allotted for unexpected maintenance and repair, which HDR said was also unrealistic.

Reg Renaud, president of STI Engineering, which owns the patented steam injection system, said he was confident he could collect nearly all the gas created based on a 10-month pilot at a landfill in San Diego.

The process hasn’t been tested on as wide a scale as the one proposed for Knott Landfill.

HDR noted Waste to Energy Group’s estimated profits were also inflated, and it was concerned about Waste to Energy’s proposal to use a landfill employee for up to 500 hours annually, or about a quarter of the employee’s work time. That request was reduced to 480 hours annually in the signed contract.

Limiting the competition and opposition

Emails also shed some light on how Waste to Energy worked with the county to limit potential competition on the landfill project.

After Haupt submitted a draft of the language the county would later put online, Lutz responded that he’d like one change made that he thought would set his company apart from others.

“Under Benefits … if something was said that the landfill gas was being converted to a green energy fuel, it will significantly limit the number of would be competitors,” Lutz wrote in an Aug. 8, 2011 email to Haupt and Hayes.

The emails also show Schimke worked with Lutz to limit outside interest and justify the county not putting out a bid for the contract.

On Aug. 9, 2011, Schimke emailed Lutz details of the public notice the county would put in local media.

“Note the sentence that says ‘pilot or experimental.’ Oregon law uses this terminology as an example of conditions that would justify sole-source contracting. Although we do not consider this a pilot project, it is experimental, and using that terminology helps us justify contracting directly with you and not soliciting other proposals,” Schimke wrote.

State law allows counties to conduct no-bid contracts as long as the services offered are only available by one company, which Schimke said applies in this case.

After the project managers learned about opposition from a resident who lived near the landfill and an environmental group that held a meeting in late February 2012, they found themselves in a dilemma.

How could they attend the meeting without getting caught in an argument with the environmental groups that questioned whether the project was environmentally friendly, as it is billed?

“I am being advised to not attend these meetings for a couple reasons,” Schimke wrote to Hayes and Lutz. “By attending their meeting we give them control.”

The solution, they decided, was to send Haupt to take notes at the meeting and report back to the county so the opposition’s concerns could be addressed later on.

“Susan did such a good job of recording and taking notes in our meetings, I would vote for her,” Lutz wrote Feb. 23, 2012. “If she is not available we can send a number of others that we know in Bend that would not stand out or represent the County in any way.”

As part of a sweeping inquiry opened last month into alleged influence peddling that toppled former Gov. John Kitzhaber, federal investigators are looking into Hayes and her work on the Knott Landfill project.

The federal grand jury subpoena asks for records involving Hayes and 11 state agencies.

The records obtained by The Bulletin don’t shed much light on why the federal investigation includes Hayes’ work with the landfill. Hayes’ emails addressed working through a state agency one time, as she wrote Lutz in June 2011: “What is the status of the project and the agreement with the county? I did not hear back from you after my email response about navigating ODOE (the Oregon Department of Energy),” she wrote. “Let me know if you are still interested in engaging 3EStrategies.”

What’s next?

More than a year after Deschutes County and Waste to Energy signed their original agreement, the Knott Landfill project has yet to break ground.

Lutz told The Bulletin last month that his company’s original financing plan had fallen through, but said he expected “boots on the ground,” in six to eight weeks.

Deschutes County could walk away from the project in July thanks to a clause that mandates that Waste to Energy must start construction on its waste-to-energy conversion plant within 18 months of the two parties’ initial signing.

“If they don’t get financing, the only thing we’re out is the fact that we gave them 18 months and sat on our hands as they tried” to put the project together, Schimke said.

The county would most likely look at more conservative ways of making money from its landfill gas if the Waste to Energy deal falls through, Schimke said.

“A more standard approach would be to harvest the (methane) gas and run it through an internal combustible engine, turning it into electricity,” Schimke told The Bulletin last month. “Then we could sell the power back to the grid.

“We could look at a more standard approach,” Schimke added in the same interview, “but it wouldn’t be near as financially beneficial to the county.”

Waste to Energy Group still has to go through permitting with the Department of Environmental Quality, which will add more time before anything starts at the landfill, assuming the permit is approved.

— Reporters: 406-589-4347, tanderson@bendbulletin.com, 541-617-7829, beastes@bendbulletin.com