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.

Critics of the decision said Bremby didn't have the authority to regulate pollutants not spelled out in the federal Clean Air Act. Sunflower, opponents said, had met all known requirements, and its permit denial would scare off other businesses.

Two days after the ruling, Phillips e-mailed Graper at the commerce department.

"We need to discuss as this is of major concern," Phillips wrote. He added, "Hyperion has to understand where the state of Kansas is on this issue."

Keeping on track

If Bremby's ruling scared off Hyperion, it wasn't immediately.

Phillips wrote to commerce officials on Oct. 31, 2007 that he was flying to Kansas the next day and would meet with another landowner.

But e-mails between the two sides show Kansas' uneasiness with their claim to the Hyperion project.

"We are trying to keep things on track as best we can while things sort out," Steve Kelly, deputy secretary of business development with the commerce department, wrote to KDHE officials in mid-November. He continued, "I think one of the things these companies are looking for is information and direction as to process and standards that will be in place."

On Dec. 6, 2007, Hyperion filed its rezoning application for land in Union County, S.D., and on Dec. 20, 2007 the company officially filed its air-quality permit with that state.

According to an e-mail from Kelly on Jan. 4, 2008, Hyperion was anxious to nail down specifics in Kansas because it was coming up on a deadline to commit to buying land.

"The cost associated with that transaction is approximately $500,000, so they understandably would like to have some conversation prior to that date to determine whether that sort of financial commitment is prudent," Kelly wrote to KDHE.

Much uncertainty

Phillips wrote to Kansas commerce secretary David Kerr on Jan. 22 asking for a commitment to approve the air-quality permit if Hyperion applied in Kansas. Bremby replied Feb. 11, "Kansas remains open for business."

Bremby wrote he couldn't commit to issuing the permit but said if Hyperion submitted the same application as they did in South Dakota, there "should not be a problem with issuance."

Sometime around this time, Hyperion told Campbell, the environmental consultant, to stop planning for the Kansas air- quality permit application, Campbell said.

On March 11, Union County officials in South Dakota approved Hyperion's request to rezone the land, and a few days later Phillips called Cole at the Pottawatomie Economic Development Commission to tell him Kansas was no longer in the running.

"Hyperion told me that with the CO2 emissions question up in the air, there was just too much uncertainty," Cole said.

Lawsuit

Cole, Carlson and others contend regulatory uncertainty created by Bremby's decision on the coal plant cost Kansas its chance. The state wasn't a fallback, they say.

"I think they were very serious about us," Carlson said.

But others say South Dakota was always Hyperion's first choice and point to the fact that only days after the company's land was approved for rezoning in South Dakota, Kansas was removed from contention.

Hyperion has run into some problems lately in South Dakota. The company's CEO, Albert Huddleston, is being sued by the trustees of his wife's multi-million dollar inheritance to try to block those funds from being used for the refinery.

The company also has applied for a $10 billion federal loan guarantee, which critics say is evidence of the project's shaky financial standing.

Open for business

The 17 million tons of CO2 the Hyperion refinery is projected to emit, according to its South Dakota application, is well above that of the rejected Sunflower plant.

Still, Kansas is interested.

"We cannot speak with any certainty as to what level of emissions would be generated at a Kansas version of the proposed Hyperion facility," said Mike Heideman, KDHE spokesman.

Carlson said he has heard there may be renewed interest by Hyperion in the state, and Monaco with the commerce department said "fairly recent" conversations with the company have been promising, though he declined to go into more detail.

Nicole Corcoran, spokeswoman for Gov. Kathleen Sebelius, said Kansas is still interested. "We're definitely open to continuing conversations with Hyperion, but we're not saying that this specific project would be approved," Corcoran said.

(C) 2008 The Topeka Capital-Journal. via ProQuest Information and Learning Company; All Rights Reserved

Related Project
Hyperion Energy Center
Facility Type: Refinery Owner: Hyperion Resources
Scope: New Construction Location: Elk Point, SD United States