ACTION REQUESTED:
Title
Communication from the City Manager and Interim Corporation Counsel with a Request to APPROVE a Rail Line LEASE AGREEMENT between the City of Peoria and PIONEER INDUSTRIAL RAILWAY COMPANY.
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BACKGROUND:
The City of Peoria owns two railroad lines. First, the City obtained the 8.29 mile Kellar Branch in the 1980s from the bankrupt Chicago, Rock Island and Pacific Railroad after abandonment to be able to maintain service for the benefit of Peoria shippers and prospective shippers. Discontinuance of service of the 5.72 mile middle segment of the Kellar Branch occurred in 2010, and has been productively/successfully turned into a trail, part of the Peoria Park District’s Rock Island Greenway. The remainder of the Kellar Branch consists of the Northern Remnant and the Southern Remnant, shown in the below schematic in red:
The referenced blue line in the above schematic consists of a 1.9 mile line of railroad known as the Pioneer Industrial Lead the City obtained separately from Union Pacific Railroad Company (“UP”) (STB FD 34066) in 2001, extending from the Kellar Branch west to UP’s Peoria Subdivision main line.
There are currently no active rail shippers on the Northern Remnant and Pioneer Industrial Lead (collectively the “Northern Tracks”) or the Southern Remnant. The Northern Tracks reach industries in the Pioneer Industrial Park area; however, without any active shippers, there has been no maintenance or track upgrades performed in at least a decade. The sole shipper on the Southern Remnant, Obrien Steel (“OBS”), has been unable to obtain rail service from the current operator, and it desires to restore its rail service.
The common carrier railroad with authority to operate the City’s remaining lines, the Central Illinois Railway Company (“CIRY”), is bankrupt and defunct, and has defaulted on its duties under the 2009 Rail Operating and Trackage Rights Agreement (“ROTRA”) with the City. CIRY’s registration with the Illinois Secretary of State was not renewed, it was involuntarily dissolved in 2011, but it failed to properly discontinue its service before the U.S. Surface Transportation Board (“STB”) prior to dissolution.
Pioneer Industrial Railway Company (“PIRY”), also a party to the ROTRA as a trackage rights carrier, wishes to continue service, and is willing to discontinue its service on the Southern Remnant in exchange for becoming the City’s common carrier service provider over the Northern Tracks.
The OBS facility is in close proximity (approximately 150 feet) to Tazewell & Peoria Railroad, Inc. (“TZPR”), and it would like to directly connect to the TZPR and restore its rail service.
City of Peoria Goals/Interests
The goal of the City on the Northern Tracks is to maintain in place the existing railroad right-of-way to ensure continuing railroad access, but with a new railroad carrier, PIRY, assuming the common carrier service and maintenance obligations of the defunct CIRY.
The goal of the City on the Southern Remnant is to preserve access to the national rail system for OBS, the sole rail shipper on the line. It will do so by seeking to discontinue common carrier service on the Southern Remnant and conveying to OBS the portion of the line underlying its property west from NE Adams Street to its connection with the TZPR at Milepost 1.71 to enable OBS to receive continuing rail service over its own private track.
The remaining portion of the Southern Remnant to the north of OBS, connecting to the Peoria Park District’s Rock Island Greenway, could then be used as an extension of the Greenway.
In accomplishing the above goals, the City has been carefully and cooperatively negotiating with the parties to avoid the litigious episode occurring in the mid- to late-2000s when operations over the rail lines owned by the City were last meaningfully addressed.
It is not expected that there would be much if any initial renumeration for the City as part of these agreements and actions, and the City is not in a position to demand any such renumeration. Instead, the City will be able to further its strategic interests in:
1. Restoring and preserving rail service in a portion of the City where there might be a future need, while requiring the new operator of the Northern Tracks, and sole shipper on the Southern Remnant, to pay for all rail line maintenance and improvements on their portions of the lines going forward;
2. Rationalizing the remaining rail system under the City’s control, and minimizing the City’s ongoing need to be involved in railroad matters; and
3. Resolving current conflicts over railroad service that have been outstanding for a number of years, and avoiding possible litigation.
In addition, if active rail service on the Northern Tracks is productively resumed, the City will be able to revise the compensation terms with the operator for continuing use of this line, while substantially aiding the cost-effective and efficient flow of commodities and goods to the benefit of Peoria shippers and receivers, and prospective shippers and receivers looking to locate in Peoria.
The New Railroad Lease
The City has spent a number of months carefully negotiating the attached railroad line lease with PIRY for PIRY to operate and maintain the Northern Tracks.
Lease terms include fairly typical terms and conditions for these types of agreements. Key terms include the following:
• Condition/Permitted Uses (Sec. 1): Leased “AS IS, WHERE IS,” for freight rail purposes only.
• Term (Sec. 2): 10 years, automatically renewed unless terminated by one of the parties for up to two additional 5-year terms, for a total of 20 years.
• Use for Rail Service (Sec. 3): PIRY gets exclusive use, and agrees to comply with its common carrier service obligations.
o Railcar Storage (Sec. 3.01): Limited/restricted railcar storage is allowed. Storage is limited to non-hazardous materials, for an initial period of 30 days upon notice, with extensions of additional 30 days authorized upon prior written notice/consent of COP. COP also has the right to terminate storage altogether to address public safety or if such termination of use is in the public interest.
o Passenger rail service (Sec. 3.01/5.02): PIRY agrees to COP preserving/using the Lines for passenger rail service in the future, but with assurances that it will not have expenses associated with such future service.
• Revenues/Fees (Sec. 4): No rental, except when traffic exceeds 150 cars/week, then annual rental of $50,000.00 (“Base Rent”), with an escalator (2%). Base rent subject to revision by Lessor every 3 years.
o Advance Notice of New Track (Sec. 4.01): PIRY will provide advance notice of plans for construction of new track connections or expansions, but need not for new customer switches
• Maintenance (Sec. 5): PIRY responsible for all maintenance and upgrades, in compliance with all regulatory standards; railroad additions/improvements allowed with the permission of the City. City has no liability or obligation for maintenance.
o Crossing Maintenance/Repairs (Sec. 5.02): PIR is responsible for all grade crossing waring devices; City responsible for maintaining all grade crossing surfaces.
• Subsurface Rights/Easements (Sec. 6): No subsurface rights, lease subject to all outstanding easements.
• Reps. and Warranties (Sec. 9): PIRY to promptly seek discontinuance authority of its existing trackage rights from the STB and to obtain STB authority to operate the remaining Northern and Western segments; PIRY agrees to support City in formal discontinuance of CIRY service and to enable the Southern segment to be converted to private track to allow TZPR to serve O’Brien Steel.
• Indemnification/Insurance (Sec. 12): PIRY accepts major indemnity obligations/will maintain adequate insurance.
• Easements (Sec. 15): PIRY to administer utility/pipeline/telecommunication easements across the leased lines, along with signage agreements, with City permission for new easements/signage. City to obtain 35% of revenues received for permitted encumbrances/signage.
• Disagreements/Default/Law/Venue (Sec. 22): Laws of Illinois apply, venue in Peoria County.
Next Steps/Overview of Regulatory Process
The next steps on the rail plan are as follows:
1. Finalize/execute the PIRY Rail Line Lease Agreement for the Northern Tracks.
2. PIRY will file a lease and operation exemption for the Northern Tracks with the STB, to allow it to become the certificated common carrier serving the lines. Contemporaneously, PIRY will file for discontinuance of its existing trackage rights over all of the lines.
3. The City will file a Discontinuance/Adverse Discontinuance of service petition with the STB to officially remove the defunct CIRY as the common carrier on the lines, and to enable the City to permanently discontinue common carrier service on the Southern Remnant.
4. Following STB approval of the above, the City will convey the Southern Remnant which extends through OBS’s property, and the property extending approximately 150 feet from OBS’s property to the TZPR, as necessary to for OBS to be able to connect to the TZPR and obtain continuing rail service via a private industrial spur which OBS will maintain and operate at its own expense.
The timing of approval of the PIRY acquisition/operation and trackage rights discontinuance petitions should be approximately 50-60 days, if there is no opposition.
The timing of the City’s discontinuance of service petition is more uncertain. If the Board enables the City to step into the shoes of CIRY to discontinue service, then approval should take approximately 140 days, if there is no opposition. If the City is required by the STB to file an Adverse Discontinuance petition, then approval could take approximately 9 months to a year.
NEIGHBORHOOD CONCERNS: None.
IMPACT IF APPROVED: The PIRY Rail Line Lease will be executed for the Northern Tracks and proceed with next steps as outlined above.
IMPACT IF DENIED: The PIRY Rail Line Lease will not be executed. Status quo will remain.
ALTERNATIVES: N/A
EEO CERTIFICATION NUMBER: N/A
WHICH OF THE GOALS IDENTIFIED IN THE COUNCIL’S 2017 - 2032 STRATEGIC PLAN DOES THIS RECOMMENDATION ADVANCE?
1. Grow Peoria
WHICH CRITICAL SUCCESS FACTOR(S) FROM THE COMPREHENSIVE PLAN DOES THIS RECOMMENDATION IMPLEMENT?
1. Invest in our infrastructure and transportation.
DEPARTMENT: Legal