(The following story by Peter Harriman appeared on the Argus Leader website on November 6.)
SIOUX FALLS, S.D. — Rail boss Kevin Schieffer and Sen. John Thune toured South Dakota on Saturday announcing a plan to seek a $2.5 billion federal loan to reconstruct 1,300 miles of line in three states and reach Wyoming’s Powder River Basin coal fields.
The reaction in their wake ranged from the dogged determination of opponents to continue fighting the scheme to the ecstatic embrace of shippers and communities that foresee an economic development bonanza.
“This is huge for us, huge for us,” said Lisa Richardson, executive director of the South Dakota Corn Utilization Council and South Dakota Corn Growers Association.
Having clearance to seek the loan is a quantum leap for the Dakota, Minnesota and Eastern Railroad and Schieffer, its chief executive officer. Yet it’s seen as a smaller piece of a bigger puzzle. At a Sioux Falls news conference Saturday, Schieffer developed that theme.
“The end game is not building a railroad,” he said. “The railroad is the means to an end.”
The project would create 3,000 construction jobs over three years and permanently employ 2,000 new DM&E workers and create as many new jobs for contractors working for the railroad.
But Schieffer said: “The direct jobs here are the tip of the iceberg. The real action is in the economic development.”
Schieffer said the railroad’s presence already has attracted new businesses. The DM&E’s presence in Brookings brought Rainbow Play Stations and 500 jobs to that community. If the railroad can transform itself into the nation’s newest, most technologically advanced Class I carrier, “I see dozens and dozens if not hundreds of Rainbow Play Stations springing up along the line,” he said.
$286.4M projected in revenue first year
With a $2.5 billion capital investment, the DM&E will create for itself a railroad with metaphors at both ends of the line. In recounting the railroad’s history, Schieffer said the DM&E’s acquisition of a sister line several years ago gave it an eastern terminus at railroading’s Rome. “For railroads, Chicago is Rome. All roads lead there,” he said.
He also called the Powder River Basin coal fields “the Holy Grail” of railroading.
Pursuit of the Holy Grail has kept the DM&E project wrapped in controversy. The goal of expanding to Wyoming is to let the DM&E grow beyond its status as the country’s largest Class II regional carrier and join the Union Pacific and BNSF railroads in hauling vast quantities of low sulfur coal to power plants in the Midwest and East. North America has seven Class I railroads, based on annual revenue of $200 million. When the project is complete “absolutely and immediately we will become the first Class I that has built itself into a Class I since the classes were established,” Schieffer said. In asking the federal Surface Transportation Board for a permit to become the third carrier into the Wyoming fields, the DM&E projects coal hauling revenue of $286.4 million in the first year alone.
Critics observe absence of private investment
But spirited opposition has formed in places such as Brookings and Pierre, along with Rochester in southeastern Minnesota. Critics there don’t want to see mile-long coal trains traveling through their towns. Some landowners in West River South Dakota and in Wyoming don’t want 280 miles of new rail bisecting their ranches. Other criticism rises from the Oglala Sioux Tribe that worries rail construction will threaten culturally sensitive sites.
Environmentalists fear noise and air pollution from the coal trains and additional air pollution in the East from the increased use of coal to generate electricity.
The announcement that the DM&E is seeking the huge federal loan that it thinks it is uniquely qualified to get didn’t weaken the resolve of prominent longtime opponents nor prompt them to view the project more kindly.
“It doesn’t change the fact that’s not a viable coal line,” said Nancy Darnell of Newcastle, Wyo. She is a member of the Mid States Coalition for Progress that sued the Surface Transportation Board over its decision to allow the DM&E expansion. The DM&E applied for the permit in 1998.
“Schieffer had seven years to get financing in a vibrant economy from an industry with a lot of money floating around, and basically nobody was willing to invest in it,” Darnell said.
“Private industry was not willing to put any money into it. Nothing but stupid money would put money into the DM&E, and the federal government tends to be incredibly stupid. That’s why it’s the financing of last resort,” she said. “Rebuilding the railroad in South Dakota for hauling grain, that might have been something different. But to build the PRB project and expect to haul coal is totally stupid.”
On Saturday, Thune and Schieffer said the Powder River Basin project would address a transportation bottleneck identified in the 2001 U.S. energy plan. The plan states there is not enough rail capacity to move Wyoming coal to power plants farther east at the rate it is needed. Because it deals with that need, the DM&E’s $2.5 billion loan request to the Federal Railroad Administration’s Railroad Rehabilitation and Improvement Financing Program would be given high priority, Thune and Schieffer said.
This will not stop the Mid State’s Coalition from trying to block the loan, Darnell promised.
“We’ll certainly look into it. That will be a stone that will not be left unturned,” she said.
Lawsuits, other barriers could delay start
The news the DM&E might have broken the longstanding logjam on project funding left some opponents scrambling. Raymond Schmitz is the attorney for Minnesota’s Olmstead County. The county, city of Rochester and the Mayo Clinic there all have opposed the DM&E’s effort to haul coal through Rochester.
“It is my understanding the city and Mayo Clinic will be taking whatever steps they can to continue their opposition,” Schmitz said Saturday. “Whether the county board elects to do anything actively at this point is a decision they have to make. The county’s position to this all along has been the impact of this on the county was way out of proportion to any benefit the county might realize.”
Schieffer praised Thune for including in the 2005 federal transportation bill provisions that make it possible for the DM&E to get a federal loan for its reconstruction and expansion.
“Obviously, at this point, we don’t know what that legislation says,” Schmitz acknowledged. “It was carefully buried in the transportation bill. Whether there is a vehicle to raise the issue is something that is going to have to be explored.”
When the Surface Transportation Board approved the DM&E project in 2002, the Mid States Coalition sued the STB, claiming its decision was flawed. The U.S. 8th Circuit Court ruled the STB decision was essentially sound. The court did, however, require the board to further analyze the environmental effects of rail vibration and horn noise, and of potential increased coal consumption, before drafting a final environmental impact statement and issuing a final decision of approval. That review is ongoing. It might allow opponents to at least slow the railroad’s progress toward securing a loan, since regulatory issues must be resolved before the Federal Railroad Administration can consider a DM&E loan application.
“I don’t see where they can do anything until they finish that EIS process,” said Sam Clauson, a South Dakota Sierra Club delegate in Rapid City. “The final EIS is due out this fall. There’s an appeal period on that. We’re going to probably appeal it.”
Schieffer said he hoped to complete the loan application this year or early next and have a decision from the rail administration on the loan by next spring. That would let construction begin next year.
Even as they laid out a future for South Dakota as an El Dorado of economic development spinning off the DM&E’s ambitious project, Thune and Schieffer acknowledged the ongoing controversies and promised to resolve them.
“Those are legitimate concerns. This is a small state. We’re neighbors,” Schieffer said. “We need to work these things out, and we will.”
Thune said of the project: “Yes, it’s great for South Dakota. But it is not unanimously supported. There is some work to do, there are some issues to address.”
Issues indeed. Fred Seymour lives on Derdall Drive near the DM&E tracks in Brookings.
“Nobody has a keener idea of the situation than me. I expect if the railroad comes through town you will see property values drop by 40 percent,” he said. Seymour was one of the earliest to call for the railroad to bypass Brookings with its coal trains. But as the project has dragged on, the momentum of opposition has slowed, he said.
“In my view, the people who opposed the railroad have gotten older and gotten crankier and have perhaps not promoted their own interests too well,” he said. He anticipates within a month Brookings will resolve its differences with the DM&E, and from his vantage near the tracks he predicts with what sounds like cynical satisfaction “I would expect the DM&E is coming right through here.”
Opponents did not rule the day as Schieffer and Thune made their way to news conferences in Sioux Falls, Huron and Rapid City.
Potential windfall for ethanol and farmers
News that the DM&E project has taken a long step toward becoming real also was widely praised Saturday. Schieffer said the railroad will build an operations center in Huron, which has struggled to attract new business. Huron lawyer Ron Volesky said Friday he is seeking the Democratic nomination for governor, and he hailed the DM&E announcement that it has potential financing for the Powder River Basin project.
“That is terrific news for Huron,” he said. “I have always been a big supporter of the expansion project, and I am very pleased to see these positive developments come about.”
At the same time, Volesky said, as governor he would try to broker compromise between the DM&E and its opponents. “The governor has responsibility as the political leader of the state to help where he can to bring about as much consensus as possible,” he said.
Gov. Mike Rounds could not be reached for comment Saturday. But he endorsed the DM&E project Friday and said: “I will continue to work with the DM&E to help make this proposal a reality and address outstanding concerns at the state level.”
The state’s burgeoning ethanol industry has almost swamped its existing rail facilities, which lends urgency to a DM&E expansion, according to Ron Lamberty, vice president for market development for the American Coalition for Ethanol.
“What we had was not built for this,” he said. A project such as the DM&E’s “is probably something that’s a necessity in the long term,” he said.
Richardson of the corn growers association peers toward the horizon Lamberty identified and sees an even brighter future. A rebuilt DM&E will aggressively compete with the state’s dominant commodity carrier, the Burlington Northern Santa Fe, and will result in lower shipping rates for farmers, she said.
And there is this:
“I was visiting with some people in the ethanol industry who said we will see coal-fired plants in the next 18 months,” Richardson said. At some point, Wyoming coal hauled by the DM&E could provide the energy to distill ethanol from South Dakota corn at new ethanol plants built here, she suggested.
“It’s huge. Huge,” Richardson said of the DM&E’s improved prospects for securing money for its Powder River Basin project. “We really hope it happens.”