Bonds

A controversial railway project in northeast Utah’s Uinta Basin has set its sights on up to $2 billion in private activity bond financing as it fends off heightened environmental concerns in the wake of last month’s train derailment in East Palestine, Ohio.

The 86-mile rail line would extend from two terminus points in the basin to connect with an existing Union Pacific line, providing a cheaper alternative to trucking for shipping waxy crude oil produced in the basin to Gulf Coast and other refineries.

Its backers also champion the Uinta Basin Railway as key infrastructure that will spur economic development in the region beyond fossil fuel production.  

After winding its way through regulatory processes, the project, a public-private partnership between the railway and Utah’s Seven County Infrastructure Coalition, is now headed for the U.S. Department of Transportation to seek a PAB allocation.

The coalition’s board, which is composed of commissioners from the eastern and central counties of Carbon, Daggett, Duchesne, Emery, San Juan, Sevier, and Uintah —  all which have populations of 35,500 or less — unanimously adopted an inducement resolution for up to $2 billion of 40-year tax-exempt bonds in February.

With the project expected to cost $1.6 billion inclusive of a 30% to 35% share of private capital financing, Mark Michel, president of the Uinta Basin Railway, said the $2 billion of PAB authorization would give bond underwriter Wells Fargo maximum flexibility and that the actual issuance amount would be lower. The debt would be paid off with money generated by the railroad from private sources.

The PAB allocation is being sought by the coalition, which would be the conduit issuer for the massive amount of debt even though it has not issued any bonds since its formation in 2014. Its meeting Thursday included a tutorial for board members explaining tax-exempt bonds and how they are sold. 

A summer pricing for probably all of the bonds is being eyed, although the sale could be delayed by ongoing litigation related to regulatory approval of the project, according to Michel, who said private capital could be tapped first in that event. He added the current spotlight on derailments shouldn’t deter investor interest in the debt.

“Will we have a problem in the summer or fall selling these bonds? I don’t think so because this is going to be investment grade-paper (with) long-term contracts supporting it,” he said, adding the project is functional transportation infrastructure and an asset critical to the nation’s needs.

If PABs are denied for the project, Michel said the railroad will be financed with taxable bonds.

“We’re within our coverage ratios whether it’s taxable or tax-exempt,” he said.

The coalition launched a public-private partnership for the railway in 2019 with Drexel Hamilton Infrastructure Partners, which owns the Uinta Basin Railway limited liability company. Utah Permanent Community Impact Fund grants totaling $27.9 million funded coalition planning and studies.

In December 2021, the project received final approval from the U.S. Surface Transportation Board, allowing for its construction and operation. A  decision by the U.S. Department of Agriculture’s Forest Service in July addressed the railroad’s ability to cross a portion of the Ashley National Forest in Utah. 

The railroad would carry as many as 10 trains a day on average depending on future market conditions, including demand for the basin’s crude oil, according to the final environmental impact statement issued in August 2021. The trains would consist of about 110 oil tanker cars and could be nearly 2 miles long.

Project opponents are also heading to the DOT, where about $19.257 billion of PABs, which are not subject to state volume caps, have been issued or allocated for transportation projects under the agency’s $30 billion authorization.  

U.S. Sens. Michael Bennet and John Hickenlooper and U.S. Rep. Joe Neguse, all Colorado Democrats, wrote to Transportation Secretary Pete Buttigieg last week, saying there is no precedent for financing a crude oil rail project with PABs and that at $2 billion, it would constitute the agency’s single biggest allocation.

“If this project truly were economically viable, its developers would have no need to rely on federal subsidies,” their letter said. “The DOT’s limited funds should be preserved for projects that would better serve the public interest.”

Opponents of the Brightline passenger rail project in Florida, who fought all the way to the U.S. Supreme Court, were ultimately unable to block the DOT’s private activity bond allocation for the project, which is expected to open for full Orlando-to-Miami service this year.

Concerns about financial viability were also raised by Martin Oberman, a surface transportation board member, when he dissented from the group’s 2021 decision.

In addition to environmental impacts, he cited “the increasingly uncertain global market for crude oil, and the likelihood that it would be the public — and not private investors — who would bear the cost of constructing an ultimately unprofitable rail project.”   

Ted Zukoski, senior attorney at Center for Biological Diversity, which is among the environmental groups challenging the project in federal court, said PABs should not be allowed for a “single-use” railroad “to make people in the oil industry rich.” He also pointed to heightened political awareness of the danger of putting hazardous material in rail cars and shipping it long distances.

“Our pitch to the (transportation) secretary, particularly with what’s going on in East Palestine, is now is not a great time to be putting 180,000 loaded rail cars full of oil onto the interstate rail system and this is not a public good,” he said, noting the USDOT’s list of projects financed with PABs includes highways, bridges, and passenger rail, which all have broad public use.

The Feb. 3 derailment of a 150-car Norfolk Southern freight train carrying hazardous materials in the village of 5,000 near the Pennsylvania border unleashed a fire and chemical spill.

On March 7, the National Transportation Safety Board announced a special investigation into Norfolk Southern Railway’s organization and safety culture, citing five “significant” accidents since December 2021, including the East Palestine derailment.


Michel said Uinta Basin oil is not hazardous to the environment because it will be shipped in a semi-solidified form.

“We want to be as safe as humanly possible operating this railroad,” he said. “The last thing you want is to have a derailment which shuts down your business and stops the ability for you to make money.”

As for qualifying for PABs, Michel said while the project will mainly benefit oil producers in the Uinta Basin initially, it is being built as a common carrier railroad and will open the region up to other industries without spending tax money and greatly reduce truck traffic on local highways. 

“This is going to drive economic activity to the northeast Utah region and allow business and industry to expand and grow because without the railroad, they have no way to get in and out of the basin other than trucking,” he said.

At the coalition’s public hearing on the bonds Thursday, comments from mostly Utah and Colorado residents were overwhelmingly against the project due to environmental concerns. 

Eagle County, Colorado, the Center for Biological Diversity, and other groups are fighting federal approvals for the railroad in court. A lawsuit filed in the U.S. Court of Appeals in Washington, D.C. last year challenges the Surface Transportation Board’s decision. 

“This court should vacate the board’s decision because the (environmental impact statement) suffers from significant deficiencies regarding the project’s most significant environmental impacts, including its large contributions to climate change, worsening air pollution in already-burdened Gulf Coast communities, dangerous landslide risks threatening public safety, and harm to (Endangered Species Act)-protected plants and fish,” the lawsuit stated. 

Colorado’s Bennet and Neguse last week cited the East Palestine derailment as they called on Agriculture Secretary Tom Vilsack to suspend a decision on the Forest Service’s special use authorization for the railway until a supplemental review is conducted to fully evaluate its impact on Colorado’s local communities and environment.

They said the railway could ship 4.6 billion gallons of waxy crude oil per year through Utah and Colorado, “including over 100 miles directly alongside the headwaters of the Colorado River — the water supply for nearly 40 million Americans, 30 Tribal nations, millions of acres of agricultural land, and a cornerstone of Colorado’s recreation and tourism economies.”

The project has the backing of top Utah elected officials, who are big boosters of the state’s fossil fuel industry. 

In July, Republican Gov. Spencer Cox called the U.S. Forest Service’s signing of a record of decision for the railway “great news” for Utah.

“This is a huge victory that will get our energy to market faster, more cleanly, more safely, and will help the economies of eastern Utah,” he said in a statement.

A spokeswoman for Utah Treasurer Marlo Oaks said tax-exempt bonds would likely improve the project’s economics. 

“There is no recourse to the state of Utah if the project fails, as the private partner Drexel Hamilton will assume the equity and risk for the project,” Brittany Griffin said in an email. “We anticipate the project will move forward, with construction likely beginning in spring 2024.” 

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