The Free Press, Mankato, MN

December 3, 2012

Update: DM&E axes coal shipping project

By Mark Fischenich
Free Press Staff Writer

MANKATO — A controversial plan to run as many as 13,000 additional trains through Mankato each year has been mothballed by the owners of the Dakota, Minnesota & Eastern Railroad, an apparent end to a 15-year effort by the railroad to become a major coal-hauling carrier.

Weakening demand for coal has prompted the Canadian Pacific Railway Co. to place on “indefinite deferral” any plans to extend the DM&E network into Wyoming’s coal-rich Powder River Basin  — an apparent death knell for a plan that prompted fierce opposition in Mankato, Rochester and some other towns along the route.

“CP took a careful look into the long-term prospects of the (Powder River Basin) for our railroad and, when considering the outlook of domestic thermal coal, we made what we feel is the prudent business decision” by axing the plans, CP spokesman Ed Greenberg told The Associated Press.

The South Dakota-based DM&E first announced its plans in 1997 to extend its track 260 miles around the Black Hills and into the coal fields of eastern Wyoming. The ambitious plan would have boosted the railroad’s daily train traffic through Mankato from two or three to as many as 34 mile-long trains — half of them coal-filled trains feeding power plants to the east,  half of them westbound empty trains returning to the Powder River Basin.

The DM&E’s plans were formed just before the resurgence of natural gas as a power source, and the energy economy has changed dramatically in recent years, said Mankato City Manager Pat Hentges.

“I think this was kind of a foregone conclusion,” Hentges said. “... I haven’t really heard much the last four years on it.”

A decade ago, it was one of the top issues in the city as Mankato officials worried about the impact of dozens of mile-long trains running each day through residential neighborhoods and adjacent to downtown.

The City Council initially reached a tentative agreement with the DM&E whereby the railroad would make as much as $25 million in improvements to the corridor to improve traffic safety and reduce noise impacts. The council later rescinded the agreement, hoping its opposition to the project would undermine the railroad’s chances of gaining federal approval.

The railroad was also exploring a southern bypass around Mankato that would have the coal trains running adjacent to Skyline, Mount Kato and subdivisions near County Road 90 — going so far as obtaining soil borings along the bypass route in 2006.

The prospects of the project moving to the construction phase appeared almost inevitable by 2006 when it passed federal environmental reviews, leaving only financing as a remaining obstacle for the $2.5 billion expansion.

DM&E appeared to solve that final challenge when Sen. John Thune, R-S.D., who had been paid $220,000 as a DM&E lobbyist just before his election to the Senate,  quietly slipped through Congress a piece of legislation that could provide the railroad with the entire $2.5 billion through a low-interest federal loan.

Gov. Mark Dayton, then a U.S. Senator, called the loan provision “outrageous” when it was first reported weeks after its passage as a small add-on to a thick transportation bill. Dayton also called the DM&E a “fly-by-night operation with good political connections.”

Opposition to the DM&E loan, which at the time would have been the largest loan to a private company in the nation’s history, grew to include both environmental and taxpayer-watchdog groups. In 2007, the Department of Transportation’s Credit Council rejected the loan, saying essentially that it wasn’t confident the DM&E could pay back American taxpayers if it fell short of its coal-hauling goals.

The Canadian Pacific bought the South Dakota-based DM&E and its subsidiaries later in 2007 for $1.5 billion. Included in the sale were DM&E’s equipment, 2,500 miles of track and the option to expand into the Wyoming coal fields to compete with the Union Pacific and BNSF Railway, which in 2006 had carried about 450 million tons of coal from the basin.

The CP’s purchase of the line provided the financial clout to finally implement the coal-train project, but railroads have been dealing with weaker coal demand because of low natural gas prices. There also is speculation that any new regulations to limit greenhouse gases would make coal even less attractive to utilities.

Wyoming is the nation’s leading coal-producing state, though the state is projecting essentially flat revenues in coming years. Wyoming’s in-house state fiscal analysts in October projected that coal production in the state is on pace to decline 8.7 percent, or about 40 million tons, in 2012.

While the DM&E’s coal project was mainly aimed at serving power plants in the Midwest and eastern United States, it was broadly supported by many farm groups and communities along the route. Along with laying new track into Wyoming, the project would have upgraded the existing line stretching across South Dakota and southern Minnesota — potentially improving rail service for farmers and shippers.

But opposition was strong in Mankato and Rochester, with the Mayo Clinic’s objections getting particular notice from Minnesota’s congressional delegation. That was reflected in Congressman Tim Walz’s statement Monday regarding the CP’s decision.

“This announcement is welcome news and is important for the safety of those who work or receive care in downtown Rochester,” stated Walz, DFL-Mankato. “While this project didn’t make sense, we must continue to look for new, innovative ways rail — particularly high-speed rail — can  work to expand Rochester’s economy, create jobs, and position southern Minnesota as a leader in the 21st century.”

Hentges said he expects — after more than 15 years — that he’s probably done dealing with the coal train problem. Even if the nation’s energy economy swings back to favor coal in the future, there’s a good chance environmental reviews would have to be largely redone — a multi-year process — since so much time has passed and conditions have changed since the original review was completed.

“I’m somewhat in the twilight of my career,” he said. “And I’d say, at least for the next five to 10 years, I don’t see us talking about it.”

— The Associated Press contributed to this story.