The board of directors of the Clay Rural Water System (CRWS) decided at its monthly meeting Thursday to not fulfill a request of the Hyperion Energy Center to be one of its water suppliers.
All nine members of the board voted to deny Hyperion's request.
"A major issue was how to pay for those improvements (to deliver the water)," said Greg Merrigan, manager of Clay Rural Water. "Our board wanted Hyperion to pay for those costs up front. Hyperion wanted us to pay for them, and then they would pay us back with a long-term supply agreement. So the real issue was payment of the infrastructure that would be needed to deliver the amount of water they requested."
Hyperion had requested that Clay Rural Water supply from 9 to 12 million gallons of water daily to its energy center.
In a press release, Robert Wood, the water system board president, noted that Clay Rural Water has no legal obligation to serve water to the energy center. He added that although the water system has commercial, residential, agricultural and consumer users in the trade area surrounding the projected location of Hyperion's energy center, Clay Rural Water doesn't presently have the ability to provide 9 to 12 million gallons per day to serve Hyperion Energy Center's commercial and industrial needs.
Wood also noted that the capital expenditure to supply that amount of water to Hyperion would be substantial, and would require Clay Rural Water to secure substantial financing to complete the project. The board decided that it is not prudent to bind members of the water system to a substantial debt to service Hyperion.
The actual costs, in dollar figures, of constructing a water delivery system from CRWS never became part of the talks between Hyperion and the water system board.
"We never got that far in the discussions," Merrigan said. "The real issue was just up front, who was going to pay and when, and it never got past that very first step to investigate anything further."
The Clay Rural Water board has consented to allow Hyperion to seek water from other sources for the energy center's commercial and industrial needs only. At the same time, the board is not consenting or waiving its legal right to be the service provider for all other current and future water users in the area surrounding the proposed site of the energy center.
"One of the things that they (Hyperion) is promoting is to try to use local service providers, and we do provide water service in that area," Merrigan said. "We don't have capacity in our system to serve that type of a load, but since we are a water service provider in that area, they came to us first and said, 'would you be interested in supplying water?'
"But then how to pay for it and when to pay for it and who was going to pay for it became the next step (in the discussion), and we never got beyond that," he said.
Hyperion's proposed refinery and energy center would be located north of Elk Point. It would process 400,000 barrels of Canadian tar sands crude oil each day into low-sulfur gasoline, diesel, jet fuel and liquid petroleum gas.
The project would include a power plant that produces electricity for the refinery. It would use a byproduct of the refinery process, solid petroleum coke, which would be turned into gas and burned to produce electrical power. The company says the gasification would allow the removal of more pollutants.
Hyperion argues the refinery would be a clean, modern plant that would reduce the nation's dependence on oil from overseas.
Opponents contend the refinery would emit too much pollution and hurt the quality of life in the area.
"The Clay Rural Water System was one of several options we have been considering to supply water for the energy center," said Eric Williams, a Hyperion spokesman. "For good reason, everything to do with water service is highly regulated, and the rules effectively require that we first ask CRWS for service before pursuing the other options. We appreciate the professionalism the board and management of CRWS displayed in this process.
"We're now stepping up our investigation into those other prospects, which include other sources or developing our own wells," he said.
The Clay Rural Water System provides water service to 2,025 locations in parts of five counties in southeast South Dakota. The sole purpose of the water system is to provide drinking water to its members for domestic, farm and business use.
Clay RWS is a member-owned, non-profit corporation incorporated in June 1975. The water system was financed and constructed from 1978-1980 primarily with member connection fees and loans and grants from the Farmers Home Administration. It became fully operational in late 1980. The original construction cost of the System was $5.8 million.
Service to the member population base of 5,200 is provided from two water treatment plants. The main plant is located seven miles east of Wakonda. A second plant is located near McCook Lake. Water is distributed from the treatment plants through a network of 900 miles of pipeline, six storage reservoirs with a capacity of 1,040,000 gallons, and three booster stations.