DM&E: How to Be a Crybaby 101

Vox Verax has covered the ongoing saga of the DM&E railroad's attempts to upgrade and expand its trackage in order to haul coal from Wyoming's Powder River Basin to power plants in the Midwest.

While the DM&E provides valuable services to farmers and rural areas in South Dakota, northern Iowa and Minnesota, we feel that the railroad's plans to haul coal through these areas is ill-conceived for a number of reasons that have been detailed over the last several years on this blog. Even more prominent today is the reality that coal as a fuel creates grave problems for the environment, and until carbon sequestration is a viable technology, numerous respected climatologists and scientists have said that no new coal-fired power plants should be built.

Today the DM&E is accusing the Rochester Coalition, which is largely funded by the Mayo Clinic, of illegally subverting its efforts to take land in Wyoming for its proposed expansion. Here is the story:

Canadian Pacific's DM&E alleges Minnesota group stirring up opposition to expansion

SIOUX FALLS, S.D. — The "Rochester Coalition" in Minnesota that is opposing a coal train expansion by Canadian Pacific's newly acquired DM&E railway has secretly instructed Wyoming landowners how to drag out efforts to acquire land, according to a motion filed by the railway.

In a civil action in federal court in Wyoming, the Dakota, Minnesota & Eastern Railroad accuses the Rochester Coalition consultants of "co-ordinating efforts with a minority of the landowners along the railroad route ... to misrepresent DM&E's dealings with landowners generally," it states.

DM&E was acquired last fall for US$1.5 billion by Calgary-based Canadian Pacific Railway (TSX:CP), which is a major carrier of coal and other commodities. However, the deal still requires regulatory approvals.

The article is here. All we can say is: What happened to the good old-fashioned American ideals of free speech, friends helping friends, and when a bully is out to get ya, look for whatever help you can?

Mayo Clinic to Canadian Pacific Railroad: Safety first

Mayo submits safety proposals for railroad

By Jeffrey Pieters, Post-Bulletin, Rochester MN

Flammable and hazardous materials, such as ethanol, propane and anhydrous ammonia, carried through Rochester on the Dakota, Minnesota & Eastern Railroad, pose a bigger public safety threat than coal ever did.

So says Mayo Clinic in a written statement to federal regulators reviewing Canadian Pacific Railway's proposed acquisition of the DM&E.

The statement was to be filed today with the federal Surface Transportation Board, which will decide by fall whether to allow the acquisition, and under what conditions to allow it.

What Mayo wants

Mayo Clinic's proposed safety requirements for the railroad line through Rochester include requiring the railroad company to:

• Build multiple grade-separated road crossings of the tracks, meaning using bridges or tunnels.
• Adhere to local speed limits of 10 mph for trains carrying hazardous cargo and 20 mph for other cargo.
• Inform Rochester emergency services before hazardous materials are sent through the city.
• Limit the number of trains through Rochester.

(The rest is here.)

South Dakota legislators push to ease railroad land grab

Bill would change eminent domain law

By Dan Daly, Rapid City Journal

A legislative bill introduced Wednesday to amend South Dakota’s eminent domain law would stop unnecessary delays of Dakota, Minnesota & Eastern Railroad’s expansion project, according to supporters.

“We all want fairness for the landowners, and believe that if the merits of the issue are ever allowed to be argued it will prove that DM&E has been fair,” said David McGirr, mayor of Huron. “But it’s time to get on with this project that so many of us have waited for so long to happen.”

But one DM&E opponent, Wasta area ranch owner Paul Jensen, said the proposed amendments “are profound changes that enable an imminent land grab.”

At the same time the bill was introduced, a group of 39 cities, business owners and agricultural groups issued a letter supporting the legislation and blasting delays in the eminent domain process.

Under current law, a railroad may condemn and acquire land only after the governor or the state transportation commission rule that the railroad’s use of eminent domain power would be for “a public use consistent with public necessity.”

DM&E has sought, without success, to win commission approval for its $6 billion plan to upgrade 600 miles of existing track on its main east-west line and build 260 miles of new track to reach the coal mines of Wyoming’s Powder River Basin.

Landowners who don’t want to give up land to the railroad have filed a number of motions. They say the state did not give them time to prepare for last summer’s hearing and had not written proper hearing rules beforehand. The hearing has been postponed, and the motions are still pending.

The new legislation, SB174, was introduced by Sen. Tom Hansen, R-Huron, and Rep. Tim Rave, R-Baltic.

(More here.)

Rochester Coalition statement on DM&E sale to Canadian Pacific

From the Rochester Coalition:

We are encouraged by the Canadian Pacific’s acquisition of the Dakota, Minnesota and Eastern Railroad (DM&E) and we look forward to meeting the railroad’s new owners.

As proposed, the DM&E rail expansion remains a major concern for our community and the railroad’s acquisition doesn’t change our commitment to protecting the people of Rochester and the patients and staff at Mayo Clinic.

Several major obstacles must be addressed before the rail expansion project moves forward, including litigating complex eminent domain challenges in South Dakota and Wyoming, completing an environmental impact review on DM&E’s critical Iowa line, solving bypass issues in Mankato, Minn., and Pierre, S.D., and reaching mitigation agreements with the cities of Brookings, S.D., and Rochester, Minn.

The Rochester Coalition represents the city of Rochester, Olmsted County, the Rochester Area Chamber of Commerce and Mayo Clinic. For more information, visit www.dmetraintruth.com.

An example of cautious optimism?

More on DM&E sale to Canadian Pacific

Foster Announces Sale of DM&E Interest

PITTSBURGH, Sept. 5 /PRNewswire-FirstCall/ -- L.B. Foster Company ("Foster") , today announced that the Canadian Pacific Railway Limited ("CP") has reached an agreement to acquire the Dakota Minnesota and Eastern Railroad ("DM&E") in which Foster holds a minority equity interest. The deal consists of a $1.48 billion cash payment at closing and future contingent payments of up to approximately US $1 billion. Future contingent payments of US $350 million become due if construction starts on the Powder River Basin Expansion project prior to December 31, 2025. Further future contingent payments of up to approximately US $700 million will become due upon the movement of specified volumes of coal from the Powder River Basin over the Powder River Basin extension prior to December 31, 2025.

For Foster, the acquisition will result in a payment of approximately $151.5 million at closing ($14.24/share), approximately $41.6 million ($3.90/share) upon commencement of construction of the PRB, and up to $84.2 million ($7.90/share) upon achieving milestones related to PRB coal tonnage thresholds. The above numbers, which are subject to adjustments both before and after closing, are all pretax except for the payment at closing which will include approximately $17.4 million of return of investment and accrued dividends.

(The article is here.)

More 'DM&E for sale' news and analysis

Vox Verax is posting the entire TRAINS article about the pending sale of the DM&E railroad with an insightful commentary by Patrick Dempsey following:

TRAINS exclusive: DM&E/IC&E bidders winnowed to around 10

by Fred W. Frailey
June 12, 2007

SIOUX FALLS, S.D. -- Union Pacific and BNSF Railway -- move over. Another railroad is nearer to laying its tracks into Wyoming's Powder River Basin coalfields. Trains has learned that Cedar American Rail Holdings is auctioning some or all of its Dakota, Minnesota & Eastern and Iowa, Chicago & Eastern Railroads to one of about 10 bidders still in the running. Several of those bidding consortiums include other railroads.

DM&E operates a route bought in 1986 from Chicago & Northwestern, from Winona, Minn., west across Minnesota and South Dakota to Rapid City -- 649 miles. From there it goes northwest to Colony, Wyo., and south to Crawford, Neb. In all, DM&E runs over 1,103 route miles.

For a decade the railroad has sought to compete with BNSF and UP for coal business in the Powder River Basin. It proposes building a new 260-mile line from Wall, S.D., along the Cheyenne River to Edgemont, S.D., and then west into the coalfields. The last regulatory hurdle was cleared in Feb. 2006, when the Surface Transportation Board gave its final approval.

All that stands in the way is financing. The estimated cost of building the new line and rebuilding the existing DM&E back to Winona is $2.3 billion to $2.5 billion. Locomotives and facilities could raise the total spending considerably. A sought-after $2.5 billion loan from the Federal Railroad Administration -- part of the $35 billion Railroad Rehabilitation Improvement and Financing program authorized by Congress -- was denied on Feb. 26, on grounds that the railroad would not be able to repay the loan. (But sources tell Trains that the FRA staff actually recommended approval of the loan, and that the railroad's financial health has improved considerably in the past two years.)

Denied the loan, DM&E's owner, Cedar American Rail Holdings, hired Merrill Lynch and Citigroup to explore other ways to finance the Powder River Basin project. Of some 100 entities approached by the investment bankers, approximately 30 expressed an interest in either buying the railroad or partnering with it in some fashion. All were asked to make proposals.

Trains learned that from those 30 interested bidders, approximately 10 consortiums were invited to hear presentations by Kevin V. Schieffer, president and chief executive officer, during the past two weeks. Three railroad companies are reportedly among the 10 semifinalists: Canadian National, Canadian Pacific, and an unnamed shortline company. Each of the three rail companies is partnering with private equity groups or other deep-pocket entities to avoid the issue of controlling ownership of DM&E. Canadian Pacific's Twin Cities-Chicago main line connects directly with DM&E at Winona. Canadian National connects at Dubuque with the IC&E, a sister railroad to DM&E. The 1,400-mile IC&E, made up of former Milwaukee Road lines, was brought under the DM&E umbrella in 2002.

Sources tell Trains that the 10 consortiums have until the end of this week to either affirm (or possibly sweeten) their proposals. It's believed that one final round of due diligence and bidding may remain before Cedar American makes a decision. That decision could involve selling all or part of both railroads, selling part or all of DM&E only or part or all of IC&E. "The nice thing about the FRA loan was that it would have enabled Cedar American to keep control of the company," said one insider. "Now that may not be possible. They may have to accept being junior partner."

DM&E and IC&E connect with each other via an IC&E line that runs north-south from Owatonna, Minn., to near Mason City, Iowa. In addition to interchanging with CP at Winona or CN at Dubuque, IC&E could run its own coal trains right into Chicago, via Savanna, Ill. One insider estimates the cost of upgrading IC&E tracks for coal service from Owatonna to Chicago at hundreds of millions of dollars.

In a letter to employees last week, Schieffer pleaded that they be patient and not fearful. "In the coming weeks," he wrote, "we will have potential investors and possible partners on the property. There are lots of lookers, and we will allow many different players to look things over. But just because they are looking doesn't mean they will ultimately be in the deal, or that there will be a deal."

Cedar American is privately owned. But rail supplier L. B. Foster Co. (symbol FSTR) owns 13.4 percent of Cedar American - the result of a $9 million investment made when DM&E was bought from North Western. Foster's filings with the Securities and Exchange Commission state that the value of its share of Cedar American far exceeds that original investment.

Patrick Dempsey comments:

It's hard to say whether Canadian National or Canadian Pacific has a leg up. I know CP did not want to sell to the DM&E its IMRL assets, which became IC&E after the sale. So, there is no doubt they have interest. CN nearly merged with BNSF seven years ago, but was blocked by the STB and UP. CN has plenty of money to buy DM&E and upgrade the line without any financial difficulties and could further enhance their position around the Great Lakes acquiring DM&E/IC&E.

I could venture a guess on the 'unnamed short line' and it would be either RailAmerica or Genesee & Wyoming Rail. RailAmerica and G&W are large corporations that own several regional and short line roads across the globe. They would probably be 'partners' in a DM&E deal rather than a CN or CP, which would probably purchase the properties outright.

Opinion: A DM&E sale would be the worst possible scenario for Mayo/Rochester. CN or CP would not offer Mayo any mitigation and more than that, they wouldn't have to if they haul coal through Rochester at some point. They both have plenty of money to upgrade and expand to the PRB if either acquires the property. Also, a CN or CP purchase would probably mean wholesale abandonments in Minnesota and Iowa along everything except the coal haul arteries. These companies would have no interest in hauling ag products along its coal arteries. They could care less about the co-ops in towns like Jackson and Sherburn, Minn., and Estherville, Iowa. But I suspect a company like Twin Cities & Western Railroad or Progressive Rail would be able to come in and buy the proposed abandonments and operate the branches as short lines.

Note the Trains article indicates that FRA staff actually recommended approval of the loan. It was politics that killed the loan and not the financial health of DM&E, as I had tried to tell people from the start. An independent DM&E would have been the best situation for Mayo and the upper Midwest, but it looks like that will no longer be the case....

Based on some of my sources in the rail business, I think I am right in saying that one of the "unnamed short lines" might either be RailAmerica or Genesee & Wyoming. Since they are "unnamed" and knowing Schieffer to NOT be a quitter, I find it hard to believe he will sell to CP or CN. My bet would be that DM&E will partner with RailAmerica or G&W in a joint venture with each owning probably half of the Cedar American business. That would certainly be good for the rural communities along the DM&E/IC&E routes if RailAmerica or G&W were involved. I doubt abandonment would be in the plan with RailAmerica or G&W in the mix. RailAmerica and G&W have very deep pockets and access to a lot of capital -- more than enough to fund the PRB project.

Vox Verax note: Whether or not FRA staff recommended the $2.3 billion DM&E loan is for insiders to know and the rest of us (perhaps) to find out. Despite arguments by loan proponents, Vox Verax still believes that the loan was denied based on questions about the DM&E's financial future.

Regardless, the FRA loan program was expanded from $3.5 billion to $35 billion because of pure earmark-style politics. If the DM&E loan also failed because of politics, then let's call it "tit for tat."

Anybody want to buy a used railroad — cheap?

For sale: DM&E Railroad

By Jeffrey Pieters, Post-Bulletin, Rochester MN

A sale announcement may be coming soon from the Dakota, Minnesota & Eastern Railroad, a rail industry magazine reports.

Trains magazine, in a report posted to its Web site on Tuesday, said that DM&E's parent company, Cedar American Rail Holdings, is accepting bids from about 10 bidders. The bidders are finalizing their offers this week, the magazine reported.

Among the bidders are three railroad companies: Canadian National, Canadian Pacific and a shortline railroad company that was not named.

Cedar American Rail Holdings owns both the DM&E and Iowa, Chicago & Eastern railroads, which together make up a 2,000-mile-plus railroad system.

DM&E was denied on Feb. 26 in its application for a $2.3 billion federal loan.

(The rest is here. And a bit more here.)

DM&E Loan Decision Based on Repayment Doubts

Platts Coal Trader

Marcin Skomial

April 19, 2007

A top official at the Federal Railroad Administration said significant skepticism about the Dakota, Minnesota and Eastern Railroad's ability to repay a $2.3 billion loan it needed to become the third railroad to serve the Powder River Basin was the sole factor in the agency's decision to deny the loan. He deflected speculation that the agency's decision could have been influenced by the project's opponents.

Pressures from the two major western railroads that are serving the PRB and the opposition from communities along the proposed route had "absolutely no impact" on the agency's decision to deny the loan, FRA Deputy Administrator Clifford Eby told attendees at the National Coal Transportation Association's spring conference in Williamsburg, Virginia, Wednesday.

The FRA's financial analysis of DM&E proposal cast significant doubt over whether the railroad would be able to persuade private investors to pour money into the project. The railroad argued that the PRB tonnage that could be realized from gaining access to the coal-rich basin would be sufficient to repay the loan and make the railroad profitable. But the agency's own analysis backed up by Department of Transportation's Credit Council did not support that view.

DM&E CEO Kevin Schieffer has not given up on his plans to build the line into the PRB, but FRA's recent determination that the project is too risky for federal government financing could significantly undercut his position as he tries to convince private investors to finance the project.

In the FRA's analysis, Eby pointed out that there was simply "too high a risk concerning the railroad's ability to repay the loan." The railroad already had a "highly leveraged financial position" and the proposed project was very large considering the current size of DM&E operations.

Eby said the FRA was concerned that the railroad may not be able to ship the projected amounts of PRB coal needed to generate sufficient revenues to repay the loan, which would have been the largest federal loan to a private company. The agency was also concerned that the railroad did not address how it would handle potential cost overruns and delays in the construction of a rail line into the PRB.

In months leading up to the FRA's February decision on the DM&E loan, some Wall Street analysts maintained that the railroad could secure sufficient tonnage to repay the loan based on analysis of potential customers.

Partnerships, not antagonism, needed to spur investment

Commenting on last week's hearing at the Surface Transportation Board concerning railroad investment in capacity, Eby said that he was concerned with the utility industry's focus on railroad rates that have escalated in recent years. He urged utilities to partner with major railroads to come up with solutions to capacity issues.

"Utilities are rehashing the same argument about railroad rates that they have been presenting for the past 25 years that has had little traction and effect," Eby said. "From my perspective, coal shipper and railroad fortunes are married, and they have to get along, but too many times they are acting like parties in divorce or separation."

Eby said rather than arguing with each other, railroads and utilities should focus on creating partnerships across the coal supply chain to prepare forecasts that could be used in developing railroads' capital budgets. He also urged railroads and coal-shipping utilities to look into the idea of developing partnerships with federal and state governments to build projects that private industry might not be willing to undertake on its own.

DM&E: The Saga Continues

by Leigh Pomeroy

Speculation continues as to what the next steps for the Dakota, Minnesota & Eastern Railroad will be after the Federal Railroad Administration turned down its request for a $2.3 billion loan to finance an expansion into Wyoming's coal-rich Powder River Basin.

Apparently, the Rochester Coalition and the Mayo Clinic have received approximately 12 pounds of DM&E records in answer to a Freedom of Information Act request made about a year ago by lawyers for the two groups. The records weren't released until after the groups sued the FRA to enforce the FOIA request and the FRA rejected the loan.

Meanwhile, the railroad has suspended development work on the so-called "southern bypass" alternative route around Mankato, Minn. The city and Blue Earth County have stated their preference for an in-city route currently owned by the Union Pacific should the DM&E project move forward. But the UP has not shown any interest in negotiating with the DM&E or the city to allow for a DM&E expansion on its right-of-way.

Contractors for the DM&E had been approaching landowners about doing soil borings and survey work for the alternative route. They had also asked Blue Earth County for permission to perform soil borings on county-owned land, but the county refused citing environmental reasons, according to the Mankato Free Press.

The Rochester Post-Bulletin speculated today today that three recent railroad stock purchases by billionaire investor Warren Buffet's Berkshire Hathaway holding company might have a bearing on the DM&E. Berkshire now owns almost 11% of Burlington Northern Santa Fe, making the holding company its largest stockholder. The BNSF is one of the two railroads that currently haul coal from the Powder River Basin, the other being the UP.

While Berkshire specifically named BNSF in its press release about the railroad stock purchases, it declined to name the other two. This has led the Post-Bulletin's Jeff Kiger to speculate: Could one of those be the DM&E?

The DM&E Controversy as a Larger Lesson

Applying the Hippocratic Oath

by Leigh Pomeroy

The Dakota, Minnesota & Eastern (DM&E) railroad expansion and loan issue has been brought up in these pages time and time again. Many Minnesota Monitor readers may say, "Who cares about some railroad that runs mainly in South Dakota, southern Minnesota and northern Iowa, if you include its subsidiary, the Iowa, Chicago & Eastern railroad? How does it affect me?"

First of all, railroads are very important to this country in shipping large quantities of goods and materials great distances. For such hauling they are far more efficient that trucks. Railroads helped this country grow, and today they are an indispensable part of this country's economic engine.

The DM&E plays not just an important, but a vital role in shipping agricultural-based products through the region it serves. Without it and other railroads in this area, commodity prices would soar, and with them the prices of many agricultural products we use, particularly those based on corn and soybeans. These include not just food but oils, livestock feed and plastics, among many others.

In supporting railroads or any other transportation system — highways, air travel, maritime shipping — the question becomes: How much should government be involved? And if government becomes involved, should it do so at a cost to such other competing interests as cities, counties, states, other businesses, the environment, cultural and religious groups like Native Americans and churches and, finally, just plain folks?

These are questions that lawmakers in Washington and state legislatures have to face every day. Such questions also arise at the county, city and, in Minnesota, township level.

"I want to expand my hog operation," a farmer says. "I just built a home two miles away," says another member of the community. How does government weigh these competing interests?

An Analogy

When health care professionals enter their fields, they are charged with numerous responsibilities. But ultimately, all the complexities of their jobs are boiled down to one simple phrase: the Hippocratic oath. For well more than 2,000 years, it has been a common denominator of the medical profession.

It is "First, do no harm."

Think about it. What if we applied this same very simple phrase to the workings of government? What would the consequences be?

For one thing, we'd not have a war in Iraq. For another, income taxes would be simpler. (Oh, how appropriate at this time of year!) For a third, the environment would be better safeguarded. For a fourth, all our children would have preventive health care. For a fifth, government would not take a position of picking winners and losers.

And that brings us back to the DM&E.

I have been critical of the railroad in these pages. It is not because I don't like the DM&E or see its benefit. It is because it has tried to use government's laws, for better or for worse, to improve its position at the expense of others.

If the railroad were a physician answerable to the Hippocratic oath, its request for special considerations to expand would fail miserably.

This is why that it is perhaps poetic justice that one of its chief opponents — perhaps the chief opponent — was the world famous Mayo Clinic in Rochester, Minn. The Mayo Clinic saw that the government's approval of the DM&E's plan to ship coal through Rochester would do harm to its patients and operations.

First, do no harm

Inevitably, when government makes policy, it must often decide between the interests of one side and another. There, it crosses the line of "First, do no harm." The question then becomes "Do the results far outweigh the costs?"

Doctors and society have decided that cutting open someone to remove an inflamed appendix, for example, is a case where benefits (survival) far outweigh the costs (the incision). With cancer patients, the question can be much more difficult. Is the harm caused by an experimental chemotherapy procedure worth the possibility of a cure?

When government takes sides, the questions may be posed in simple terms for the electorate, but the answers and options are far from it. As much as we would like, we cannot quantify the "First, do no harm" rule. There is no such thing as 100 percent compliance. But what is appropriate? 90 percent? 75 percent? 51 percent?

We are a nation of laws based upon a constitution. When there is disagreement we rely upon a system of courts to decide right and wrong. Ultimately, we — and the courts — have found that this country must rely on concepts far older and more fundamental than that constitution.

One is "First, do no harm."

DM&E: Are Thune and Schieffer a couple of cry babies?

by Leigh Pomeroy

Minnesota, South Dakota, Montana and Wyoming newspapers are rife today with more mentions of the DM&E railroad and its subsidiaries. Commanding the most attention is an AP article going under the general headline "Senator blames competitors for loan rejection" or "Thune says competitors derailed loan" or "Sen. Thune: Competitors helped kill DM&E loan."

How this all started is when Sen. John Thune (R-S.D.) managed to sneak a provision into the 2005 Transportation Act on behalf of his former client, the DM&E railroad. The problem is that it swelled a loan program for certain railroads from $3.5 billion to $35 billion, there was no discussion of it in either chamber of Congress, and almost no one knew about it except perhaps a few members of the House-Senate conference committee.

This little bit of behind-the-scenes chicanery was soon discovered and a chorus of objections were raised, led in part by the Mankato, Minn., Free Press. But by then most of the world felt that what would be a $2.3 billion gift of an uncollateralized loan at generous rates to the DM&E was a done deal. The congressional authorization was written in stone in the transportation bill, and everybody knows that you can't fight both the railroad and Congress — a.k.a. the sometime representatives of the people.

Well, a few folks thought otherwise, and today that loan has been squashed.

Those who have an intimate knowledge of the process know that the reason why the Federal Railroad Administration did not approve the loan was purely based on the numbers. The DM&E simply couldn't guarantee that it could pay the loan back. While opponents of the loan were hampered because they did not have access to the DM&E's corporate finances, they did have enough information for a few studies. It was clear, for example, that the DM&E, while showing a profit on its current operations, would be vastly overstretched were it to take on the extra $6 billion in debt ($2.3 billion from taxpayers) it was seeking.

Despite the nuts-and-bolts decision the FRA made on the DM&E's creditworthiness, there was lots of politicking happening on both sides of the issue. What it came down to, at least in the press, was: My friends are more powerful than your friends. But ultimately this should not have had anything to do with the FRA's decision — and probably didn't.

That's why it's laughingly funny when Sen. Thune, who started this whole process by trying to game the system, complains when others — he points to the BNSF railroad in particular — decide they're going to play by the same rules.

Thune and DM&E CEO Kevin Schieffer have to understand that if they're going to play ball on the big boys' playground, the big boys are not necessarily going to let them win. And if they get knocked down because the big boys teach them a lesson or two, it does little good to go to mama media crying.

Instead, they should pick themselves up and dust themselves off, go back to their own playground, get darned good at the game, and then maybe — just maybe — the big boys will say, "Hey, we like the way you play. Wanna come play with us?"

That's how it works with sports, and often with politics and business. The bottom line is: If you're not ready for the big-time, it doesn't mean you can't try. What it does mean is that if you get slapped down, no one's going to have any sympathy if you go crying to your mama. You just have to get up, figure out what you can do, and try again.

Another DM&E derailment

Another DM&E train has derailed again, this time in Pierre, S.D.

People ask why this happens so frequently. The adjacent photo was taken of track near Courtland, Minn., where a DM&E train derailed November 24 of last year, spilling 30,000 gallons of ethanol. Notice that part of the metal is peeling away from the rest of the rail.

Should this be a cause of concern? Apparently not to the DM&E, as this is rail that numerous people must have walked by to get from the crossroad nearest the derailment, CR 24/45, to the area of the spill.

Stay Thuned -- er, tuned....

DM&E loan: What's a loss to some may be a boon to others

More from the "government should not pick winners and losers" file....

Loan denial raises hopes

Railroad rejection might help Selby land power plant

By Russ Keen, American News
Aberdeen, South Dakota

The Dakota, Minnesota and Eastern railroad's latest bane might be Walworth County's blessing.

The chances of a $1.5 billion electric power plant being built near Selby improved when the Federal Railroad Administration rejected DM&E's request for a $2.3 billion loan to help build a $6 billion railroad into Wyoming coal fields, said Gary Steuck of Mobridge.

He is chairman of the North Central Power Plant Task Force, a group that has been working for years to lure the power plant to Walworth County.

The rest is here.

Ag interests cry "foul" over DM&E loan rejection

by Leigh Pomeroy

The wailing and gnashing-of-teeth reaction to the Federal Railroad Administration's rejection of a proposed $2.3 billion loan for the DM&E railroad has strangely not come from Powder River Basin coal interests or coal-fired utilities in the nation's midsection, both of whom would have the most to gain had the loan been approved. No, the loudest hue and cry has come from agricultural interests along the route that were sucked into supporting the proposed loan on the premise that the PRB expansion was the only way the DM&E could upgrade its service for them.

The DM&E's request for a zero collateral, low interest, taxpayer guaranteed loan is sort of like a baseball team owner asking taxpayers to build him a stadium on the premise that it will generate economic benefits and increase tax revenues. As we have come to learn, the jury is very much out on that argument.

Supporters of the loan have pointed out that massive amounts of state and federal dollars have built this nation's interstate highway system. True. Fortunately, the American people as represented by the state and federal governments have retained ownership in that system. In other words, they have something tangible for their tax dollar investment.

If a bank wants to loan money to a business or a homeowner, it understandably expects collateral in return. That's called good business. The same rules should apply to the government, which represents its investors, the people whom it serves. A government loan, like a bank loan, must make good business sense.

Agricultural interests are notorious for being collectors at the public trough. According to the Environmental Working Group, farm subsides reached $164.7 billion for the period 1995-2005. Of that amount, $5.6 billion went to farmers in South Dakota and $9.5 billion went to farmers in Minnesota — the states that would most benefit from the DM&E loan — over that same period of time. For many farmers and groups that represent farmers, these subsidies have become an entitlement.

It is ironic that all too often those who champion "free market economics" are the first in line with their hands out looking for government money. One of the arguments that the DM&E put forward for the loan was that it would allow the railroad to "compete" for hauling Powder River Basin coal. Who would they compete against? Two other railroads. Does this mean that in order to set up a level playing field (per stadiums — no pun intended) the government would have to give the other two railroads low interest, taxpayer guaranteed loans of $2.3 billion each?

The DM&E has already received one $233 million loan. While it used some of that money to improve its infrastructure and upgrade service to existing rural and agricultural markets, it spent a certain amount on legal fees, public relations and other development costs for the PRB expansion, and towards paying off the purchase of the IC&E railroad, which it had acquired less than a year earlier.

Maybe if the DM&E had put more of the loan it already has toward improving service to Minnesota and South Dakota markets, its second loan application, ten times the size of its first, would have looked better to the FRA.

The DM&E's CEO Kevin Schieffer, like a good baseball manager, has very cleverly used ag interests to carry his water on the proposed $2.3 billion loan issue. One of these days these ag interests are going to wake up and realize they've been manipulated. While they've been thinking all along they're in the lineup, in fact they're not even on the roster. Instead, they've just been a bunch of rabid fans fueled by six-packs, overpriced hot dogs and the thought of winning a pennant.

Thanks to Patrick Dempsey for his input on this article.

What's in a pork sandwich?

Sen. John Thune excoriated again by yet another conservative commentator

Robert Novak gives his 2¢ worth in the Washington Post today about South Dakota Republican Sen. John Thune's failed attempted to get a whole hog's worth of pork for his buddy Kevin Schieffer's DM&E railroad.

Here's the beginning of what Novak has to say:

A Senator's Railroad No-Brainer

By Robert D. Novak
Monday, March 5, 2007; A15

The Federal Railroad Administration handed a rare victory to the American taxpayer last week by denying a questionable $2.3 billion loan application by the Dakota, Minnesota and Eastern (DM&E) Railroad. What makes this news of special interest is the paramount role Sen. John Thune (R-S.D.) played in boosting the loan. Here is a cautionary tale of political life in Washington and how it corrupts.

Thune guided through Congress legislative changes that made the loan possible. But an assessment that DM&E was a poor credit risk was shared by two other conservative senators -- Tom Coburn of Oklahoma and Jim DeMint of South Carolina -- who took the extraordinary step of advocating rejection of a colleague's pet project. Making matters worse, Thune worked as a paid lobbyist for the South Dakota-based railroad before his election to the Senate and has received political contributions from company executives.

Thune entered the Senate in 2005 as a rising GOP star after defeating Democratic leader Tom Daschle. He declared himself eager to rein in spending in a Republican-controlled government. But instead of aligning with his party's reformers, Thune has been energetic in promoting pork for South Dakota. After the embarrassment of the DM&E loan rejection, a Republican Senate source who did not want to be identified said: "One can hope this episode helps Thune recover his revolutionary zeal."

The rest is here.

Those who have pointed out Thune's double standard on pork — that is, claiming to want to "rein in spending" while steering hog futures to his own state — need look no further than his own Senate website where he gleefully details all the road and highway earmarks he brought to South Dakota in the 2005 Transportation Bill. That press release is here.

On the DM&E: "Buying a U.S. senator just doesn’t get you what it used to"

Sam Hurst is a filmmaker who lives in Rapid City, S.D., and writes regular columns for the Rapid City Journal. The following column appeared Sunday, March 3.

South Dakotans "would rather try to con the hardworking taxpayers of California and Michigan into hauling 18th century energy on a 19th century railroad to 20th century utilities than invest in our own 21st century assets. We don’t lack power. We lack imagination."

South Dakota needs to have a new energy strategy

By Sam Hurst

Kevin Schieffer and his pol pal John Thune got whacked last week. They didn’t see it coming. Sen. Thune’s re-write of federal railroad loan regulations to grease the track for a $2.3 billion public loan to the Dakota, Minnesota & Eastern Railroad was nothing if not audacious, especially considering that DM&E is one of the most unsafe railroads in the nation, is deeply in debt, and offered no visible means to repay the loan.

In the wake of the loan refusal, Thune describes himself as the victim of a vast conspiracy that dared to question DM&E’s entitlement to sup at the public trough.

The senator told reporters on Wednesday that his opponents, especially the black-hearted Mayo Clinic, were out to get him. That’s the political equivalent of slinking home from school with an “F” in math and telling your parents: “The teacher doesn’t like me.” Buying a U.S. senator just doesn’t get you what it used to.

The decision of federal railroad administrator Joseph Boardman was elegantly simple: The DM&E loan represented “an unacceptably high risk for federal taxpayers.” It was language that would make any self-respecting, fiscally conservative Republican stand up and cheer.

The rest is here.

End of the Line or Back to the Drawing Board for DM&E Coal Trains?

There is a broader solution. With proper leadership we will find it.

by Leigh Pomeroy

Now that the Federal Railroad Administration has told the Dakota, Minnesota & Eastern railroad that it is not going to give it the hoped-for $2.3 billion loan to expand into the Powder River Basin, is that the end of a decade-long dream for the DM&E's CEO Kevin Schieffer?

The answer is: No one knows. Schieffer at least in public has said he's not throwing in the towel. The Surface Transportation Board and the FRA have approved the project, just not the massive loan. The Mayo Clinic and other opponents along the route haven't scheduled any victory parties. And freshman Congressman Tim Walz, whose upset victory last fall came partially because of his opposition to the loan, is holding out an olive branch saying, yes, we want the railroad to upgrade and succeed, but no, we're not crazy about the coal.

Ten years ago when Kevin Schieffer set off on his quest to turn the Class II DM&E into a Class I railroad, he thought he had a surefire solution: Extend his fledgling regional operation into the coal-rich PRB and begin shipping America's last remaining supplies of relatively cheap fossil fuel to coal hungry power plants in America's heartland. Though there were already two railroad lines servicing the area, his new route would be shorter and more direct to points east. It sounded like a can't-fail plan.

Yet he didn't anticipate the opposition that would arise along the way from a vast and diverse myriad of interests. Despite this opposition he kept pushing forward, but partially because of the opposition the project grew more expensive. Would-be investors started to get nervous. So Schieffer turned to his old friend John Thune, a newly elected senator from South Dakota, for help. Thune obliged by adding a last-minute provision into the massive 2005 Transportation Bill that would all but assure the DM&E of a low-interest, taxpayer guaranteed federal loan that would cover about 35% of the cost. It seemed like a slam dunk.

Citizens, the media and all but a handful of legislators didn't find out about this provision until after the behemoth bill was passed. Soon the media were trumpeting the DM&E PRB expansion project as a done deal: You can't fight both the railroad and Congress.

But they forgot to ask a few folks along the way. While the environmental opposition had faded away after a series of Surface Transportation Board decisions favoring the railroad that were upheld in court, there was still strong opposition from ranchers in Wyoming, citizens in Brookings, S.D., and above all, the Mayo Clinic and the City of Rochester, Minn. The latter two, which had been fighting the expansion quietly for years, suddenly swung into full combat mode, pulling out all the stops — and investing hundreds of thousands of dollars — in an effort to bring the project to a screeching halt. Suddenly the battle became: Who had the most powerful friends in Washington?

Yet the conflict was more than that, and in fact it is a textbook study on how citizen perseverance can overcome self-serving business and political interests.

Often a battle to achieve a political end, whether it be constructing a recreational trail or stopping a massive railroad project, begins with a few impassioned citizens. Sometimes they're considered "crazies", because they often seem obsessed and the odds of their succeeding appear so remote. Yet these causes take on a life of their own, and if they are legitimate attract other followers. Often, those who initiate such advocacies fade into the background as new people take over, bringing different skills and a stronger power base. The cause becomes like a relay race, where one person or group hands off the baton to another, and then to another, and so on.

The strength of an advocacy is not so much due to the numbers behind it or its absolute power, but to its persistence. On a larger scale, no revolution ever succeeded because it started with a backing of the majority of the people. It started with a small but impassioned group that grew and persevered and eventually outlasted what was once a more powerful entrenched group.

Back to the DM&E:

The arguments of the agricultural interests that have been loudest for upgrading the DM&E are certainly legitimate. This country needs a strong railroad infrastructure. Yet the coal argument made ten years ago is no longer viable today, especially in light of the planet's newfound concerns over global warming. Even Wall Street is recognizing that coal is not a singular answer to the nation's energy needs, and the aging power plants in the country's midsection will be receiving more and more scrutiny as we begin to factor in rapidly rising environmental costs in cost-benefit analyses.

What would be the best solution to the needs of the various interests involved in this dispute? It is not, at this point, in pitting one side against another. What should be done is that the legislative leaders who have taken an active role in this controversy — Rep. Walz and Sens. Coleman and Klobuchar in Minnesota, and Rep. Herseth and Sens. Thune and Johnson in South Dakota — set up a means whereby all stakeholders can sit down with each other in a series of open and candid meetings to iron out a compromise.

There are solutions and certainly common interests. Now that the war over the DM&E's PRB plans has been fought to a stalemate, it is time for a peace conference to determine what's best for the railroad transportation needs of all the citizens in the Northern Plains and the Midwest.

Ohio conservatives: Good riddance to a bad loan

"Unless wasteful requests are continuously flagged by taxpayer advocates and soundly rebuked, deals where only one party benefits will sneak by, while the nation's taxpayers and the economies of Ohio and Midwest foot the bill."

The following article is by two respected Ohio fiscal conservatives — Ken Blackwell, former secretary of state and Republican candidate for governor, and Brad Smith, a professor of law at Capital University Law School. Ohio coal-fired power plants were often mentioned as potential beneficiaries of the proposed DM&E railroad expansion into Wyoming's coal-rich Powder River Basin.

Midwest doesn't need to be railroaded

Ken Blackwell & Brad Smith

Nobel Prize-winning economist Milton Friedman once said, "The most important single central fact about a free market is that no exchange takes place unless both parties benefit."

Government, however, is different. Exchanges often seem to take place in which one private party benefits, and the taxpayers lose. One such deal is an outrageous proposed taxpayer-funded subsidy currently brewing in Washington.

This week, the Federal Railroad Administration declined a $2.3 billion loan application from a small South Dakota railroad with an accident rate eight times the national average.

Dakota, Minnesota and Eastern Railroad (DM&E) wanted to build over 250 miles of new track so that it can expand its enterprise and ship Wyoming Powder River Basin coal to the Midwest.

The loan was nearly approved.

Taxpayers were saved from this bad deal because of the collective outrage expressed by taxpayer advocates like the National Taxpayers Union, Citizens Against Government Waste and others. Budget Director Rob Portman also played an important part in halting the loan.

In 2003, before the railroad company caught the attention of the nation's fiscal watchdogs, it received a $233 million federal loan. It stands as the single largest loan awarded to a railroad and one DM&E is still paying off. To put that loan in perspective, Amtrak ranks a distant second with a $100 million loan granted in 2002.

The rest is here.

What's Next for the DM&E?

by Leigh Pomeroy

The DM&E railroad's hoped-for $2.3 billion government loan is now officially dead. According to Minnesota Rep. Tim Walz, there is no appeal, there are no conditions. Over a year of angst and worry, thousands of hours invested, hundreds of thousands of dollars spent and just as many words written, most implying that the loan was a "done deal," and BOOM! Suddenly it's all over.

Well, not quite.

DM&E CEO Kevin Schieffer says he's not giving up. '"It’s obviously a disappointment, but not the first we've had in the last nine years, and I’m sure it’s not the last." Yet it's back to the drawing board for a man whom both admirers and enemies have described as being "driven" and "arrogant."

Those who know him personally say that there is still outside funding available, though undoubtedly the terms would be less favorable than the massive $2.3 billion low-interest, taxpayer guaranteed loan would have been.

The Federal Railway Administration offered several reasons for rejecting the loan, including:

• the DM&E’s current highly leveraged financial position,
• the size of the loan relative to the limited scale of existing DM&E operations,
• the possibility that the railroad may not be able to ship the projected amounts of coal needed to generate enough revenue to pay back the loan, and
• concerns that the application did not sufficiently address how the railroad would handle potential cost overruns and schedule delays with the Powder River Basin construction project ("FRA Administrator Denies DM&E Powder River Basin Loan Application Citing Unacceptable Risk to Federal Taxpayers").
  

The DM&E has steadfastly refused to make its financial records public, prompting the Mayo Clinic and the Rochester Coalition to file a Freedom of Information Act request with the FRA in April of 2006. That request has yet to be honored, which prompted attorneys acting on behalf of the Clinic and the Coalition to recently file suit with the FRA forcing the FOIA request compliance. At the moment the Clinic and the Coalition have not indicated as to whether they will continue the lawsuit.

Despite the DM&E's penchant for secrecy, there was still ample enough public information to cause the loan to be questioned by members of Congress and organizations championing government fiscal restraint. Much of this was contained in a Bearing Point study commissioned by the Mayo Clinic and Rochester Coalition.

Yet the FRA's decision caught at least some members of the Mayo Clinic/Rochester Coalition team by surprise. "This was not expected," said Patrick Connolly, a coordinator for the team's effort. "We're still in utter shock."

Many in the press too must have been surprised, as the underlying theme in many media reports was that "you can't stop the railroad." At least some local government officials, particularly in Mankato, voiced the same opinion. They were opposed to coal trains coming through their city, yet decided they needed to negotiate with the DM&E because they felt the railroad's expansion project was inevitable.

Rep. Walz indicated on Monday, however, that he expected this outcome from the FRA. "The citizens of this district demanded close scrutiny of this loan and they got it," he said. "This loan proposal brought people from all walks of life together to insist that members of Congress better monitor taxpayer funds. I believe that today’s decision is a direct result of congressional and citizen inquiry and oversight."

Sen. John Thune, R-S.D., the former DM&E lobbyist who at the last minute had inserted the DM&E friendly loan provision into the 2005 Transportation Bill, offered a different take. "Simply put, there was a huge amount of money spent to sabotage this project by powerful special interests and their hired guns," he said. "This is a case of special interests beating the little guy."

Federal Railway Administration Nixes DM&E Loan

The Federal Railway Administration today turned down a requested $2.3 billion loan for the DM&E railroad, based in Sioux Falls, S.D. Below is the FRA statement, released this afternoon:

Monday, February 26, 2007 (Washington, DC) Federal Railroad Administrator Joseph H. Boardman today denied a $2.3 billion Railroad Rehabilitation and Improvement Financing (RRIF) loan application from the Dakota, Minnesota, & Eastern (DM&E) railroad concluding it posed an unacceptably high risk to federal taxpayers.

In a decision released today, Boardman found that while the Powder River Basin project met some of the RRIF program’s statutory requirements, there remained too high a risk concerning the railroad’s ability to repay the loan even with an appropriate combination of credit risk premiums and collateral.

He said he was concerned by several factors, including the DM&E’s current highly leveraged financial position; the size of the loan relative to the limited scale of existing DM&E operations; and the possibility that the railroad may not be able to ship the projected amounts of coal needed to generate enough revenue to pay back the loan.

In addition, Boardman cited concerns that the application did not sufficiently address how the railroad would handle potential cost overruns and schedule delays with the Powder River Basin construction project.

Boardman reached his final decision after reviewing the DM&E application using the criteria set by Congress for the RRIF loan program and following an environmental review of the proposed project.

DM&E had applied for the RRIF loan to finance construction of a new 280-mile rail line to Wyoming’s Powder River Basin coal mines and to reconstruct approximately 600 miles of existing track in South Dakota and Minnesota.