Will Biden And Buttigieg Turn The Colorado River Into An Oil Slick?

Private financiers and fossil fuel producers in Utah have an audacious plan to run crude oil trains along the fragile banks of the Colorado River — and get public money to build it. Reporter Julia Rock spent weeks reporting on the corporate interests pushing the new rail project forward. In today’s featured story, she talks with activists and insiders about why this project could be disastrous for the American West.

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In the parched Southwest, one in eight Americans rely on a single drought-stressed river that carries snowmelt from Rocky Mountain peaks down to desert communities. But instead of strengthening protections for that crucial water supply, the Biden administration has quietly laid the groundwork for a financial firm full of former government officials to use it as a route for oil trains — amid heightened concerns about derailments.

This spring, the project’s backers took the initial steps to apply for special Transportation Department bonds subsidized by tens of millions of dollars in annual tax breaks. Transportation Secretary Pete Buttigieg — a former McKinsey consultant who has previously touted such bonds — is under pressure from Democratic lawmakers, local communities, and environmental groups to deny the bonds, but has remained silent.

Meanwhile, the firm at the center of the project has never successfully developed a major infrastructure project, though it says it is “leveraging a proprietary set of relationships” its executives built during their time in government, according to corporate documents reviewed by The Lever.

As climate change jeopardizes the American West’s tenuous water supplies, the Utah project — which already received federal permitting approval — is audacious. It aims to run trains full of petroleum from Northeast Utah’s Uinta Basin along the banks of the Colorado River as it winds through treacherous canyons prone to rockslides and mudslides.

Critics say those hazards could easily trigger derailments, spilling crude oil into the water that millions of Americans living downstream need to survive. Indeed, even the federal agency that approved permits for the project admitted that such rail lines are susceptible to derailments, and that accidents involving oil trains often involve the release of toxins.

“If issued, this would not only constitute the largest [private activity bond] the [Department of Transportation] has ever issued; it would also irretrievably sink taxpayer dollars into a project that has proven unable to contain its own costs,” wrote Colorado Sens. Michael Bennet (D), John Hickenlooper (D), and Rep. Joe Neguse (D) in a March 9 letter to Buttigieg, demanding he reject the developers’ request for tax breaks. “The project could result in as many as five, two-mile-long crude-oil trains running over 100 miles directly alongside the headwaters of the Colorado River each day.”

In an earlier letter to a top Biden environmental adviser, Bennet and Neguse declared: “We urge you not to allow this project to move forward… We simply cannot afford the risk of an oil train derailment in these sensitive areas.”

The new railroad would give Uinta Basin oil producers access to refineries and export infrastructure on the Gulf Coast — which they claim would allow them to sell their oil at a higher price and increase production by up to 350,000 barrels per day, according to the project’s environmental impact statement. If the project is completed, and spurs increased oil production as developers promise, environmental groups say it would create a “carbon bomb,” increasing U.S. carbon emissions by an estimated one percent annually.

The largest oil producer in the Uinta Basin, Finley Resources (which operates in Utah through its subsidiary Uinta Wax), has been promoting the project while claiming it cannot afford to contribute to construction costs. Finley received government handouts from nearly every corporate subsidy program in the 2020 COVID-19 relief legislation, the CARES Act.

The project’s developers are planning to ask Buttigieg to approve “private activity bonds” subsidized by $80 million per year in federal tax breaks to finance the railroad’s construction. The use of these federally-subsidized bonds — which have historically been allocated for highways, bridges, and passenger trains — for an oil train would be unprecedented.

Even as the U.S. subsidizes fossil fuels by tens of billions of dollars annually, the Uinta Basin project stands out as a “fleece job,” said Tyson Slocum, director of watchdog group Public Citizen’s energy program.

“Asking for public financing for this type of infrastructure project is outrageous,” said Slocum. “It is particularly problematic when you have an opaque investor, where we don’t know anything about the limited financial partners. It’s very common for these private equity firms to do a bunch of the up-front work and then sell it. Clearly, obtaining a massive public subsidy to cover your capital investment costs for this rail infrastructure project will automatically make this investment extremely lucrative.”

A Department of Transportation spokesperson told The Lever that no formal application has been submitted for the private activity bonds for the railroad.

The Biden administration, which has been greenlighting new oil and gas development at a faster rate than the Trump administration and rapidly approving export projects along the Gulf Coast, has already granted the project its necessary permits. Environmental groups are appealing the approval, and Democrats from Colorado’s congressional delegation have asked the administration to reconsider.

“It’s A Treacherous Place To Transport Anything”

Northeast Utah’s Uinta Basin is an arid depression in the earth, wedged between the towering Uinta Mountains and the Colorado Plateaus. Just beneath the surface are massive conventional oil and gas reserves and shale oil patches — and the basin is now covered with thousands of wells that are producing more than 135,000 barrels of oil each day.

The area has some of the worst air quality in the country as a result. Persistently high ozone levels in the basin frequently exceed the Environmental Protection Agency’s safe standard in the winter.

Still, Utah has been on a crusade to increase fossil fuel production in the state’s most oil-rich region. One priority for state officials and their fossil fuel donors has been figuring out a way to connect the basin to international markets.

The Uinta basin’s waxy crude oil is highly lucrative because its low sulfur levels mean little processing is required to refine it into a usable product. But its viscous nature poses a problem: It is nearly impossible to transport by pipeline — and is instead heated to a liquid and loaded onto tankers to be shipped by truck. Right now, most of the basin’s oil is trucked 200 miles to a handful of refineries in Salt Lake City.

The finite refinery capacity limits production, and the high cost of transporting the oil by truck means producers have to sell to the refiners at a discounted rate. Shipment by rail would be cheaper, and give Uinta Basin crude oil access to more refineries.

The proposed railway would connect the basin to a Union Pacific-owned line that runs through the Rocky Mountains immediately alongside the Colorado River all the way to the Gulf Coast.

“For about 100 miles of the railroad, it is close enough to the river that if you’re sitting in a raft in the middle of it, you could throw a rock and hit the railroad,” said Ted Zukoski, an attorney with the Center for Biological Diversity, an environmental group that has been fighting the project.

In addition to the general dangers of siting an oil train right next to the river, the specific route would run through Glenwood Canyon, a narrow 12-mile gorge where steep, unstable walls loom hundreds of feet over the river.

“Glenwood Canyon is a difficult and fragile canyon,” said Jonathan Godes, former mayor of nearby Glenwood Springs, which was threatened by a wildfire in the canyon in 2020. “In the winter, highway I-70 will be shut down for 20 to 30 days for semi-truck accidents,” referring to the highway that runs along the railroad. “It’s a treacherous place to transport anything.”

Despite these concerns, in 2021, the federal independent agency that regulates railroads, the Surface Transportation Board, approved the Uinta Basin rail project. Two Biden agencies — the Forest Service and Fish and Wildlife — signed off on the project, too, rejecting concerns raised by environmental groups.

When the Surface Transportation Board approved the project in 2021, they did not conduct an official environmental analysis along the existing Union Pacific route. Using national train derailment data, the agency predicted that increased rail traffic thanks to the new line would lead to one train accident every other year on the existing segment that runs through the Rocky Mountains, a significant portion of which abuts the Colorado River.

The Center for Biological Diversity and Eagle County, Colorado are suing the Surface Transportation Board and the Fish and Wildlife Service over the project’s approval, in part because of the lack of an environmental analysis and evaluation of derailment risks on the existing route, which runs through treacherous terrain.

“The board’s analysis of environmental impacts from the traffic on the Union Pacific Line was limited to compiling data on a few effects including grade-crossing safety and delays and noise and vibrations, impacts that the board described as low,” Eagle County noted in a brief. “The board arbitrarily assumed that the likelihood of derailment for long trains carrying oil through the Mountain West would be the same as any other train in any other locale in America.”

Project developers claim that even if oil spills along the route, it will be easy to clean up because of its waxy nature.

“The likelihood of it spilling in a derailment is very minimal because it is a solid,” Keith Heaton, a local economic development official working on the project, told Deseret News. “It would just sit on the ground like a candlestick.”

But unlike candles, waxy crude is toxic. “It’s just like picking up candles, if your candles may cause cancer, organ failure, genetic defects, are very toxic to aquatic life, and may persist in the environment for years,” said Zukoski.

Moreover, the oil is heated to a liquid for transport, and the extent to which it solidifies when spilled depends on the outdoor temperature. The Surface Transportation Board noted in the project’s environmental impact analysis that waxy crude, “if spilled in water, tends to form globules of semisolid material that lock it in place,” but also that “waxy crude oil may persist in the environment for a longer time relative to other non-waxy crude oil.”

Waxy crude is also highly flammable — and according to the Surface Transportation Board, in an oil train derailment involving at least five cars, “the likelihood of an accident having sufficient energy to yield an ignition [is] 50 percent or more.”

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Utah’s Crusade To Build The Railroad

Behind the push for the project are fossil fuel-producing counties in Utah, which have been fixated on developing the rail line for years.

In 2013, the Utah Department of Transportation concluded in a study that the state could miss out on $24 billion in economic activity from oil and gas production in the Uinta Basin “unless transportation limitations are resolved with new infrastructure investment.”

The following year, a coalition of Utah counties in fossil fuel-producing regions formed the Seven County Infrastructure Coalition to “promote cooperative regional planning.” The new entity took up the railroad proposal and began commissioning reports on the possibility of constructing a railroad to carry oil out of the basin.

“A significantly larger volume of oil is available and could be produced quickly if additional markets were available in which to sell Uinta Basin oil,” a 2018 study commissioned by the coalition concluded.

From the outset, project proponents have admitted that the railroad will not be viable without public financing. Yet, contradictorily, they’ve also argued that it will produce massive economic value for the state of Utah — and that taxpayers won’t be taking on any risk.

“Uinta crude is stranded in the Basin, resulting in a loss (due to discounts created by limited access to outside markets) to oil producers of more than $3 billion over the last decade,” the county coalition wrote in an application to the Utah Permanent Community Impact Board in 2018, requesting a $28 million grant for the project. “It is believed access to alternate markets will raise the price paid for the Uinta Basin waxy crude and allow significant increases in oil production. However, the project is dependent on public subsidies for it to be financially viable.”

The state Permanent Community Impact Fund Board allocates tens of millions of dollars of royalties from resource extraction to localities — “mineral leasing” revenue — with the intended goal of mitigating the impacts of such extraction. But in 2020, a state audit found that some projects financed with the royalties — including the Uinta Basin Rail project — were improperly aimed at economic development by private interests, rather than the fund’s intended purpose.

In response to the audit, legislators amended the statute that governs how the mineral leasing revenue is spent, removing the stipulation that it be used for “mitigating impacts from extractive mineral industries.”

Heaton, the executive director of the Seven County Infrastructure Coalition, declined to answer any questions for this story, citing “ongoing litigation.”

In 2021, a report from a coalition of environmental groups found that the Community Impact Board had funneled $109 million in grants and cheap loans towards fossil fuel projects over the past decade.

One such project is the Uinta Basin Railway, which received the $28 million grant it requested in 2018. Both the state’s attorney general’s office and treasurer’s office opposed the grant, questioning the legality of using mineral leasing revenue for an oil train project.

Private Equity Developers

To move the project ahead, the Seven County Infrastructure Coalition put out a request for qualifications in 2019 for a firm to finance, construct, and operate the rail project.

The Seven County Infrastructure Coalition selected Drexel Hamilton Infrastructure Partners, or DHIP Group, to lead financing for the project, and Rio Grande Pacific Corp, a railroad holding company, to operate it. The two entities set up a new company, Uinta Basin Railway LLC, to develop the project. DHIP Group owns a 90 percent stake and Rio Grande Pacific Corp owns the rest.

Very little information is available about the Florida-based DHIP Group, which advertises itself as “a diversified asset manager” that “directs private equity infrastructure investments.” The firm does not appear to have successfully financed a major infrastructure project before. Their other major infrastructure project, a $2.5 billion oil export facility in Louisiana, was canceled in 2021 due to concerns about emissions and revelations that the proposed site for the project sat atop a slave cemetery. The only completed project in their public portfolio is a self-storage facility in New York.

“Every potential opportunity to exploit oil and gas reserves in this country has been looked at in detail by experienced professionals,” said Justin Mikulka, a research fellow at the energy transition think tank New Consensus. “We now have some people with no experience who are looking for a lot of public money to do this project, which raises a red flag. They will get paid handsomely if they are able to pull it off — that doesn’t mean it’s a good financial investment.”

It’s not clear how the group ended up developing a major infrastructure project in Utah. One clue comes from DHIP Group’s financial filings, which advertises their close relationships with public officials and their managers’ military experience.

“DHIP believes it can create superior value for stakeholders by leveraging a proprietary set of relationships developed not only during its team’s time in the private sector, but also while serving in the United States military and government,” according to a filing from a special-purpose acquisition company formed by some of the developers behind the Uinta Basin rail project. “Its dedicated and seasoned professionals have completed a variety of greenfield and brownfield projects for the United States military and certain United States government allies.”

DHIP’s co-founder Mark Michel is a former Navy officer who served as “the Navy’s representative to the National Security Council in the White House Situation Room and was a member of the National Security Council staff” during the Obama years, according to the DHIP Group website. “He crafted and conducted daily intelligence briefings with the president, and senior West Wing principals and liaised with global heads of state.”

On the same site, co-founder Timothy Fisher touts army credentials: “During his second tour [in Iraq] he oversaw and coordinated with a governing district in eastern Baghdad to plan, implement, build, and pay for all its U.S. funded public works projects.”

Mark Hemphill of Rio Grande Pacific Corp, who is leading development of the rail project, is described as having directed “the U.S. government’s reconstruction of the Iraqi Republic Railways following the Iraq War” as part of the State Department.

The biggest beneficiaries of the railway project might be the four oil companies that control more than 80 percent of production in the Uinta basin.

The largest among them is Finley Resources, a Texas-based oil conglomerate owned by Jim Finley. In 2021, Finley presented to the coalition of counties on the virtues of the Uinta Basin waxy crude and the need for a railroad.

“At some point the basin is going to hit a brick wall from a truck-traffic standpoint,” he said, “and to grow the basin to 200,000 or 300,000 barrels a day, which it is fully capable of doing, we have to have the railroad.”

But Finley said in the same presentation that his firm couldn’t help finance the railroad’s construction.

“It is the classic chicken and the egg,” he said. “We can’t commit volumes so that Mark [Michel] and his folks can get funding until we actually have the volume. In order to get the volume, we have to have the truck traffic and rail facilities to get us there.”

Turning To Federal Funds

While the project has been portrayed as a financially viable private-sector business investment, the planning, permitting, and litigation costs for the project have so far been paid for by the state — and DHIP Group is now preparing to request federal subsidies for construction.

The main permitting hurdle was at the Surface Transportation Board, the independent federal agency that regulates railroads. In 2021, the agency approved the project by a four-one vote — with one Democratic member and three Republican members supporting the project.

The lone dissenter was Democrat Martin Oberman, who raised concerns about how the project would raise financing, especially as the future of the oil market was in question. “While private/public partnerships (‘3Ps’’) are not unprecedented in the freight rail industry, there has never been such a partnership approaching the size and scope of the [project],” Oberman wrote in a dissent to the agency’s preliminary approval.

He repeated these concerns in his final dissenting opinion, writing: “It confirms the significant concerns I raised previously about the extent to which the project will both require the backing of, and put at risk, public funds.”

Now, the project is seeking an additional, massive influx of federal taxpayer cash for construction using private activity bonds.

Private activity bonds are issued by private entities — or through public conduits to benefit private entities — to raise funds for projects in the public interest, typically highways or passenger rail projects. The interest on the bonds is exempt from federal taxes, allowing the issuers to offer them at a lower interest rate, making it easier to attract buyers.

The particular private activity bonds that the Uinta Basin Railway developers are seeking would come from the Department of Transportation’s $30 billion pool. Most of the bond issuances since 2005 have gone to highway and passenger rail projects, and none have gone to oil trains. In February, the coalition of counties in Utah passed an inducement resolution sponsoring the developers’ request for this kind of government funding. In May, the Seven County Infrastructure Coalition retained counsel to handle the formal bond application and legal compliance.

The Center for Biological Diversity has calculated that the bonds, which would be offered at a six percent interest rate, compared to the typical corporate bond rate of 10 percent, would cost U.S. taxpayers $80 million annually for the 40-year term of the bond.

Finley — the oil conglomerate that stands to profit from the project — is already a major beneficiary of federal subsidies.

“Since the coronavirus pandemic, Finley has taken advantage of tens of millions of taxpayer dollars through myriad CARES Act provisions, including multiple million-dollar PPP loans, federal royalty relief of hundreds of thousands of acres, and the largest [Main Street Lending Program] loan to an [oil and gas] operator,” Chris Kuveke, a researcher at Bailout Watch who is working on a forthcoming report on Finley, told The Lever. “Now the largest crude producer in the Uinta, (through Finley Resources and Uinta Wax Operating), Finley and co. will reap millions in benefits from the state taxpayer-funded Uinta Basin Railway.”

Finley Resources did not respond to a request for comment.

Michel of DHIP Group told Bond Buyer that even if his firm doesn’t receive the subsidy for the new rail line, they will move forward with issuing taxable bonds to finance the project. According to the report, Michel added that “the current spotlight on derailments shouldn’t deter investor interest in the debt.” Wells Fargo has entered an agreement with DHIP Group to underwrite the bonds.

Michel said in a February meeting of the Seven County Infrastructure Coalition that the developers intended to use bonds to raise 65 to 75 percent of the capital for the $3 billion project, and then finance the remainder with equity.

DHIP Group has not indicated how it will raise the remaining equity and did not respond to multiple requests for comment.

While the environmental impact of the rail line is clear to residents, state officials have also criticized the project’s finances.

“Projects funded through [private activity bonds] provide significant value to the traveling public,” Colorado Attorney General Philip Weiser (D) wrote in an April 21 letter to Buttigieg. “Yet, the Uinta Basin Railway offers no such mobility value to the public, but only to private sector interests. Federal Private Activity Bonds should benefit the public and prioritize moving people, not goods for a private industry actor.”

Three congressional Democrats in Colorado have also denounced the project, while Republican Rep. Lauren Boebert has declined to weigh in — even though she is a fossil fuel booster and the Union Pacific line runs through her district.

Now, it’s up to Buttigieg’s agency to decide whether to approve the bonds.

Two Biden agencies — the Forest Service and Fish and Wildlife — have signed off on the Uinta Basin rail project. But Biden doesn’t seem willing to take a position on drilling in the area: Last fall, his administration rescinded a Trump-era approval of oil and gas permits on public lands in the Uinta Basin, citing the potential emissions. Project proponents claim that the new rail line will increase the region’s oil production by relieving transportation bottlenecks, and that more than 80 percent of those shipments will be taken to the Gulf Coast for export.

Those projections might hold sway with the administration, which has been aggressively boosting fossil fuel exports.

Biden has approved major fossil fuel export projects on the Gulf Coast in recent months, where oil exports have hit record highs. Last month, he approved the largest-ever oil drilling project on public lands, the Willow Project in Alaska (after calling drilling in the Arctic a “big disaster” on the campaign trail), and then approved liquefied natural gas (LNG) exports from Alaska weeks later.

The Uinta Basin rail project could become part of Biden’s legacy of providing public financial support to ramping up fossil fuel exports — even as the administration claims it is committed to fighting climate change and protecting the Colorado River.

“The purpose and intent of the railway is to induce a huge increase in oil production in the Uinta Basin, which will result in an increase in production by almost twice as much as the Willow Project, which has been dubbed a huge carbon bomb,” said Zukoski, the Center for Biological Diversity attorney. “Now the proponents are seeking a handout, a huge subsidy, to build what is essentially a for-profit oil railway to do all of this damage.”