Obstacles push DM&E expansion to the tipping point

by Leigh Pomeroy

Once considered a "sure thing," the proposed Dakota Minnesota & Eastern (DM&E) Railroad expansion into the coal-rich Powder River Basin could be on the verge of collapse. The reasons for this are many and varied, but a last-minute provision slipped into the Transportation Bill earlier this year virtually assuring a $2.3 billion dollar unsecured federal loan for the railroad now appears to be in serious jeopardy.

Further, private financing for the expansion has disappeared from the horizon, engineering problems have multiplied, opposition from Rochester is stronger than ever, and the railroad's competitors, the Union Pacific (UP) and the Burlington Northern and Santa Fe (BNSF), have shown no desire to cooperate.

The bottom line is that Washington and DM&E insiders now agree independently that the project has only a 50-50 chance of going forward. And that may be optimistic.

Here are the reasons why:

Lack of competitor cooperation

Just this week, the BNSF released its comment on the proposed DM&E upgrade and how increased traffic could jeopardize BNSF operations. The BNSF report specifically referred to the former I & M Rail Link (IMRL) trackage that the DM&E acquired in 2003. DM&E CEO Kevin Schieffer has characteristically dismissed the BNSF report as being "a desire to keep competition out of the marketplace."

The DM&E hopes that the IMRL tracks will provide a possible alternate route to going through Rochester, Minnesota, where dogged opposition from the city, Olmsted County and the Mayo Clinic has proven to be a political nightmare both for the DM&E and politicians in Minnesota who have supported the expansion.

The other major carrier of Powder River coal, the Union Pacific, has remained steadfastly mum on the issue, possibly because it's caught between two alternative outcomes, both profitable for the larger railroad.

On the one hand, if the DM&E expansion does not go through, the UP will continue to share the lucrative business of hauling Powder River coal with just one competitor, the BNSF. On the other hand, if the DM&E receives its loan and goes ahead with the project, the UP, with first right of refusal on any sale of the DM&E, will be in the perfect spot to acquire the smaller railroad and assume its taxpayer-subsidized loan, possibly at fire sale prices.

The UP is also a key player in the DM&E's route selection in Mankato and Blue Earth County. The DM&E's first-choice route is through this city of about 35,000, but the DM&E doesn't own the right-of-way; the UP does. In order to accommodate the projected increase in DM&E traffic, the route would have to be upgraded, increasing trackage, expanding sidings, and adding millions of dollars of mitigation to the nearly five miles of neighborhoods it winds through.

While the DM&E would pick up the tab, the UP has shown no interest in coming to the table, either with the DM&E or the City of Mankato. Consequently, the DM&E is considering a so-called "southern bypass" through rural Blue Earth County. Both the city and the county have stated their preference to be the "in-town" route, but engineering obstacles to the south route make that option environmentally and economically nearly impossible.

Prof. Bryce Hoppie of Minnesota State University Mankato did a geological study of the proposed route in 2000 when it was first put forward. He states:

In summary, my preliminary results indicate that expansion along the existing railroad corridor west of downtown Mankato (Ml and M3) or along the western end of the southern bypass (M2) have substantial negative impacts on the local environment. I believe the extent of the negative impacts I have identified herein may be as great as any found along the entire line of the expanded DM&E railway. [Italics mine.]

Specifically, Prof. Hoppie points to two problems: First, the railroad will not be able to achieve a greater than 3% grade in order to haul coal. With the route going from existing DM&E tracks alongside the Minnesota River, across the parallel UP right-of-way, across the Blue Earth River, and finally up to the plateau south of Mankato, there will be need for grading and at least one trestle as much as a mile long and up to 80 feet high. Since the soil in the Blue Earth River Valley is soft, organic material on top of clay, pilings perhaps as long as 100 feet may have to be driven into the substrate in order to support the weight of the coal trains and their specialized locomotives.

Prof. Hoppie says that while there is no project too difficult for any engineer, laying a railroad line capable of supporting mile-long coal trains would be cost prohibitive. Further, extensive environmental mitigation would need to be made, adding to the cost and the construction timeline.

Thus, the DM&E plan for Mankato seems to be stuck between a lack of cooperation from the UP for the in-town route and the near impracticality of the southern bypass.

The changing climate in Washington

The success of the Democratic Party victories in southern Minnesota in the last election did not bode well for the DM&E's plans. Many observers (including this one) attribute Tim Walz's stunning victory over 12-year incumbent Gil Gutknecht for the House seat in District 1 to the DM&E issue. Gutknecht was a firm expansion supporter despite the fierce opposition from his hometown of Rochester. Walz did not oppose the expansion per se, but condemned the proposed $2.3 billion loan and stood firmly on the side of Rochester and the Mayo Clinic in defense of their interests.

Since the election, Minnesota Sen. Norm Coleman and Gov. Tim Pawlenty, both Republicans, have shown more interest in the Rochester-Mayo point of view after standing mostly on the sidelines up till Nov. 7. Further, the incoming Chair of the powerful House Transportation Committee will be Minnesota's Jim Oberstar, and while Oberstar is known as a railroad supporter, it is unlikely he will approve any legislation damaging to Walz or his constituents.

South Dakota Sen. John Thune, the former DM&E lobbyist responsible for slipping the $2.3 billion loan into the 2006 Transportation Bill, is still in Congress but holds less sway due to the upcoming turnover. Also, the process by which he added the loan provision without any hearing in the House has suffered attack from both the right and the left.

The other two members of the South Dakota Capitol Hill contingent, Rep. Stephanie Herseth and Sen. Tim Johnson, both Democrats, have been supportive of the project. But Johnson is temporarily incapacitated due to a brain hemorrhage, and Herseth may be backtracking a bit in deference to Walz's win and the lack of enthusiasm in Minnesota for the DM&E's plans.

While the loan was in the Transportation Bill, the appropriations bill funding it was never voted on and instead passed onto the new Democrat controlled Congress that convenes in 2007. Like the infamous proposed wall along the U.S. border with Mexico, it was approved but never funded.

Stuck in the station?

The lack of cooperation of the BNSF and the UP for advancing the project and the Democratic takeover of Congress are just two of the obstacles the DM&E faces. There are many more: from ranchers in Wyoming to Indian tribes in South Dakota, and from the tiny Village of Skyline, Minnesota, one of the smallest cities along the DM&E's route, to Rochester, the largest and economically most powerful. All have reasons to oppose the railroad's expansion plans.

What keeps the project going is the determination of the DM&E's Schieffer, his connections in Washington — former DM&E lobbyist Thune and the Republican-appointed Surface Transportation Board — the nation's struggle for energy independence, and a near-universal support for improving the country's archaic railroad system. Yet as the length of time for the project's approval expands, as the opposition remains steadfast, and as the economic and environmental concerns (including global warming) mount, the probability that the project will go forward in its current form increasingly diminishes.

The proposed DM&E expansion has been stuck in the station for almost 10 years. The chance that it will ever get up enough steam to finally leave is looking more and more remote.

To be continued...