Union Pacific's Tennessee Pass could become short cut for Utah crude oil

New information on project comes from Surface Transportation Board's website in an un-redacted filing
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WASHINGTON — Union Pacific has been negotiating a sale of its dormant Tennessee Pass route with Rio Grande Pacific, the short line holding company that would operate a new railroad proposed to haul heavy crude oil out of Utah’s Uinta Basin.

The information was accidentally disclosed in a filing posted briefly to the Surface Transportation Board’s website on Monday before being removed. A redacted version, blocking out sensitive commercial information including Rio Grande Pacific’s name, was later made public.

The $1.5 billion Uinta Basin Railway, a private-public partnership, would be the first link in sending heavy Uinta Basin crude to refineries on the Gulf Coast. If built, the 80-mile route would connect with UP’s Provo Subdivision, part of the former Denver & Rio Grande Western main line.

Tennessee Pass, the former D&RGW line that has been dormant for more than two decades, would serve as a shortcut for the up to 400,000 barrels per day the Uinta Basin Railway would originate. The railroad’s backers expect the Uinta Basin Railway to handle three to 10 trains per day, including inbound frac sand shipments.

No final decision has been made to build the line, which is reportedly being financed by Drexel Hamilton Infrastructure Partners (PDF download), according to the line's backers. Construction hinges, in part, on securing customer commitments.

Rio Grande Pacific, based in Fort Worth, Texas, operates four short lines that cover 700 route miles in six states. CEO Richard Bertel did not immediately respond to a Trains News Wire request for comment this morning.

UP’s negotiations with Rio Grande Pacific came to light because of a competing offer to purchase the Tennessee Pass line. UP last year rebuffed an offer from a firm controlled by billionaire New York City real estate magnates interested in restoring the route to haul grain and other commodities.

Last month the real estate moguls’ firm, KCVN, asked the Surface Transportation Board to order UP to sell its 228-mile Tennessee Pass route so that the line can be reactivated.

KCVN LLC and its subsidiary, Colorado Pacific Railroad LLC, said they would buy the long-dormant route for its liquidation value of $8.8 million, down from a $10 million offer they made to Union Pacific in November.

In its filing, UP urged federal regulators to reject KCVN and Colorado Pacific’s feeder line application.

“Union Pacific continues to have a strong interest in restoring service on the Line. In fact, when KCVN sent Union Pacific a letter offering to acquire the Line in November 2019, we were already engaged in preliminary discussions with Rio Grande Pacific Corporation about restoring service on discontinued portions of the Line,” UP said in its filing. “Specifically, RGPC had expressed interest in purchasing from Union Pacific the portion of the Line from Parkdale to Gypsum, Colorado, and implementing both passenger and freight service. We told KCVN we intended to see those discussions through before exploring other options.”

UP and Rio Grande Pacific held talks as recently as last month.

UP said KCVN fails to meet the standards for a feeder line application, which would amount to a forced sale of what UP called “an irreplaceable strategic asset.”

“If KCVN believes it has a better use for the Line than Union Pacific, its ‘remedy’ is not to pursue a forced sale through a feeder line application, but rather to negotiate a mutually beneficial, market-based arrangement with Union Pacific,” UP wrote in its filing.

KCVN and Colorado Pacific in 2018 successfully used a feeder line application to gain control of the 121.9-mile Towner Line in Eastern Colorado. Last year Colorado Pacific spent $3.5 million to restore the line to 25-mph operation and next month plans to resume regular service on the Towner Line.

Stefan Soloviev, one of the partners in KCVN and Colorado Pacific, owns more than 350,000 acres of cropland, runs an agricultural company, and sees a combination of the Towner Line and Tennessee Pass as a shortcut for exporting grain to the West Coast.

CLARIFICATION: Drexel Hamilton Infrastructure Partners, LP, (DHIP) is commercializing and financing the Uinta Basin Railway. An earlier version of this story listed the commercialization and financial institution as Drexel Hamilton, LLC. DHIP is a separate company from Drexel Hamilton, LLC, for regulatory purposes. The two companies were previously affiliated. Last updated 1:53 p.m. Central time March 12, 2020.

CORRECTION: An earlier headline and subheadline for this story said that information from a Surface Transportation Board filing showed that crude oil might move over Tennessee Pass, it does not. Crude oil moving over Tennessee Pass comes from the author's inferences. 1:54 p.m. Central time March 12, 2020.
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