Surface Transportation Board (STB) denies K&O-Union Pacific lease renewal in Kansas

 

The Colorado Pacific Railroad and Weskan Grain, both part of the Soloviev Group, have sued Union Pacific and the Kansas & Oklahoma Railroad over a fee they say blocks grain from moving on the Colorado Pacific Soloviev Group

 

Editor’s Note:  The following article was submitted to The Prowers Journal by Will Bramblett/CEO of Weskan Grain  – originally published in “Railway News”

 

K&O-Union Pacific lease renewal was denied. In an STB decision, federal regulators said the lease appeared to discourage interchange. The affected carrier was Colorado Pacific Railroad.

The request covered 165.98 miles of Union Pacific track in western Kansas. Meanwhile, regulators said the agreement raised concerns. Traffic might not move to Colorado Pacific. It could remain tied to UP instead.

How the K&O-Union Pacific lease renewal dispute began?

The case grew out of a 2024 request from Weskan Grain. The company wanted to move grain west on Kansas & Oklahoma Railroad. It wanted a connection with Colorado Pacific at Towner, Colo. Instead, the traffic had to go east to reach Union Pacific.

Weskan’s complaint and the lease history

Short line lease cases are typically exempt from full review by the Surface Transportation Board. In its complaint to the STB, however, Weskan asked for a partial revocation. The board had granted the K&O lease exemption in 2001. In addition, that process exposed two later lease renewals and amendments. They were made in 2018 and 2019 without board approval.

In February 2025, the board said in an earlier STB ruling: “Because K&O did not seek or obtain Board authority to enter into the modified lease agreement from which Weskan sought relief, the Board found that Weskan’s petition was moot and directed K&O to file a petition for exemption or application to obtain after-the-fact authority to renew the Lease,” the board said in February 2025.

K&O’s later filing

Also, K&O later filed to have the lease renewal exempt from board review. It acknowledged the lease terms. They would limit its ability to interchange traffic with any third-party connecting carrier. In this case, Colorado Pacific was the only practical alternative.

Weskan Grain, Colorado Pacific Railroad interchange, and the Towner Line

Weskan argued that the interchange commitment was anticompetitive. It said the commitment was designed to “preserve UP’s market power.” It also said the commitment made those moves uneconomic for K&O. The shipments were Kansas agricultural traffic. They were headed west of the Colorado Pacific (CXR) interchange at Towner. Weskan and CXR have common ownership under the Soloviev Group.

Weskan’s argument

The company operates a grain elevator near Sheridan Lake, Colo., on Colorado Pacific’s Towner Line. For example, it argued that westbound shipments from Kansas first had to travel east. They then had to go hundreds of miles to the UP interchange. Only after that could they be routed west.

UP’s waiver offer

K&O responded that the issue had become moot. It said UP proposed to waive the interchange commitment. The waiver would cover all K&O-CXR interchange traffic. It would last for the balance of the current lease. Still, the board rejected that argument. It said the waiver was temporary. It also said the waiver could be limited to a specific shipper. That did not resolve the broader competitive concerns.

UP also told the board that “it will waive ‘the asset use fee when K&O interchanges Weskan’s traffic with another carrier for the duration of the current lease.’” The railroad did not say if it applied to the other 10 shippers on K&O. Separately, UP later argued the dispute had shifted. It had moved from the interchange commitment to K&O’s rates.

Why the Surface Transportation Board denied the exemption?

Also, the STB said a transaction can be exempt from review only in limited circumstances. Regulation must not be necessary to carry out rail transportation policy. In addition, the matter must be limited in scope. Or, oversight must not be needed to protect shippers from abuse of market power.

In addition, the board said K&O had not met that standard. “K&O has not met this burden. Use of the exemption process, which is designed to minimize regulatory burdens, is appropriate only when the information provided is sufficient, under the circumstances, for the Board to reach an informed decision,” the STB said. “Where there is an inadequate record on which to reach an informed decision whether to grant an exemption, a petition for exemption will be denied.

“Here, there is an insufficient evidentiary record to permit the Board to find that regulation is not necessary,” the STB said. “Accordingly, the Board will deny K&O’s petition for exemption.”

Interchange record and asset use fee

At the same time, the board cited evidence from CXR and Weskan. It said no carloads originating or terminating on the leased lines had interchanged with CXR. “CXR and Weskan have presented evidence that no carloads originating or terminating on the Lines have interchanged with CXR. Given that the interchange commitment was already in effect, this lack of interchanged traffic creates a strong inference that the interchange commitment has effectively foreclosed interchange with CXR,” the STB said. “K&O has offered no rebuttal on this point.”

Meanwhile, the board also questioned the asset use fee. It added: “Nor have K&O and UP explained why the asset use fee aspect of the interchange commitment, the addition of which seemed to coincide with CXR’s purchase of the Towner Line, is not a penalty that discourages interchange with carriers other than UP. It applies to every revenue carload that originates or terminates on the Lines interchanged with any carrier other than UP and has no cap or limit.”

Still, the decision directs K&O to seek lease renewal authority by May 4.

#    #     #