Hyperion refinery: possibility or politics?

Topeka Capital-Journal, The, May 18, 2008 by James Carlson

By James Carlson

THE CAPITAL-JOURNAL

Officials called it Project Nicole, and for almost two years they concealed its details.

While a fight over the proposed $3.5 billion expansion of a coal- fired power plant boiled in public, negotiations for an even bigger investment played out in the background.

The details of this secret development dwarfed all others. Hyperion Resources Inc., a Dallas-based company, was considering four sites, including Kansas, for a $10 billion oil refinery producing 8,000 construction jobs and 1,800 well-paying permanent positions.

"Wow is all I can say," wrote Deb Miller, secretary of the Kansas Department of Transportation, when she learned of Project Nicole in March 2007.

Then in March 2008, the refinery and coal plant projects collided. Reporters were summoned to a Statehouse office where Rep. Richard Carlson, R-St. Marys, revealed that Kansas was no longer in contention for this previously undisclosed oil refinery. Why? Because Hyperion's president was unsure of Kansas' regulatory climate, Carlson said.

This offered the ultimate example of what supporters of the coal- fired power plant had said all along - the decision by the state's top environmental regulator to deny the power plant, decried as outside his authority, was driving investment away from the state.

But others said Hyperion had long ago decided to locate its refinery in South Dakota and that Kansas was only a fallback site.

Was Kansas in serious contention for the project or was connecting the coal-plant denial to the lost $10 billion project just political hyperbole?

Compelling reasons

In April 2006, Bob Cole, director of the Pottawatomie County Economic Development Corporation, replied to a request by Hyperion for possible sites to locate an oil refinery. Over the next 10 months, Cole and others in the Kansas Department of Commerce talked with Hyperion, and by Feb. 15, 2007, the state was one of four remaining areas in contention.

The company also was considering Iowa, Nebraska and South Dakota, according to a questionnaire submitted by Hyperion to state officials in March 2007.

On April 11, 2007, Lt. Gov. Mark Parkinson and other state officials flew to Dallas for a meeting with the company. Six days later, Hyperion executive Preston Phillips e-mailed Bill Graper, a development consultant with the commerce department.

"Kansas presents many compelling reasons for doing business in the state," Phillips wrote. "Hyperion wants to move forward with more detailed discussions."

Between that meeting and the end of May, Phillips and other Hyperion representatives visited Topeka twice, according to an e- mail from Graper to Kansas officials involved in the negotiations.

The purpose of these meetings, Graper wrote, was to "begin permitting protocols" and to "discuss the process for optioning needed property."

"You never really know if we were a secondary option (for Hyperion)," Cole said in an interview. "But suffice it to say, they spent a lot of money and a lot of time on the Kansas side."

Kansas, a backup

In June 2007, after media speculation about a mystery company buying up land around Elk Point, S.D., Hyperion announced it was considering the South Dakota city as a location.

Soon after, RTP Environmental Associates Inc., a consultant for Hyperion, began work on the permitting process with South Dakota officials.

In September, Colin Campbell, the RTP employee in charge of the Hyperion project, e-mailed the Environmental Protection Agency, saying he would be submitting an air-quality permit application for the South Dakota location soon.

"A different site could ultimately be selected, but we can deal with that circumstance if and when it arises," Campbell wrote.

Carlson acknowledges South Dakota was moving ahead. "We were probably a little behind," he said. "(Hyperion was) renewing land options up there."

The Kansas Department of Commerce points to the South Dakota site announcement and the subsequent months of dialogue between that state and Hyperion as a clue that Kansas was a backup.

"All indications in the summer and fall were that the gears were turning in South Dakota and that South Dakota had emerged as the top candidate," said Joe Monaco, spokesman for the commerce department.

Moving forward

But also at this time in Kansas, Phillips met with landowners in Pottawatomie County, according to an e-mail he sent to Kansas officials in early September 2007.

"She was very nice and receptive to the project," the Hyperion executive wrote about one landowner.

Meanwhile, Campbell with the consulting firm said he was moving forward with an air-quality permit application in Kansas, per instructions from Hyperion.

"South Dakota was definitely where we first filed," Campbell said in an interview. "But I don't know if that was any indication of preference."

'We need to discuss'

On Oct. 19, 2007, Rod Bremby, secretary of the Kansas Department of Health and Environment, announced he was denying an air-quality permit for the 1,400-megawatt expansion of a power plant outside Holcomb in Finney County that was sought by Sunflower Electric Power Corp. He cited dangers posed by the plant's projected 11 million tons of carbon dioxide emissions, a greenhouse gas many scientists link to global warming.