(The following story by Peter Harriman appeared on the Argus Leader website on March 18.)
SIOUX CITY, S.D. — Potential competitors to the DM&E played a key, albeit behind- the-scenes, role in derailing the South Dakota railroad’s bid for a $2.3 billion loan, according to Sen. John Thune, R-S.D.
While most agree that one Class I railroad – the Union Pacific – stayed out of the battle, actions by the BNSF Railway bolster the senator’s claims that competition in the marketplace translated to a fight in Washington.
Efforts to finance its planned $6 billion reconstruction and expansion abruptly shifted tracks when Thune secured changes in the 2005 federal transportation bill that seemed to make the Dakota Minnesota & Eastern Railroad uniquely qualified for a huge federal loan.
DM&E officials applied for a $2.3 billion Federal Railroad Administration loan behind claims that hauling coal from Wyoming to power plants in the East and Midwest would further a federal goal of energy independence and would relieve a rail capacity shortfall.
All signs were favorable that the loan would be granted, Thune said, until the FRA on Feb. 26 announced it was denying the application. Administration head Joe Boardman said the DM&E, which already had received more than $200 million in loans from the FRA, was leveraged too far to take on an additional $2.3 billion in debt.
Thune said the existing Wyoming coal haulers, the BNSF and the Union Pacific, two of the nation’s largest railroads, worked behind the scenes to kill the loan.
Union Pacific officials denied they had any role, and DM&E Chief Executive Officer Kevin Schieffer agreed.
“I would have to credit the UP with being straight up on this thing. I don’t think they are rooting for us on the sidelines, but by the same token, they said what they would do and did what they said. As a matter of fact, they have gone out of their way to make it clear they do not want to be viewed as anti-competitive.”
The BNSF, however, was another thing, Schieffer said. As he sought to shepherd the loan application through federal bureaucracy last year, “I certainly saw the BN coming in every office I was six times over with twice the people. They were all over the place.”
While the Mayo Clinic and other entities in Rochester, Minn., and a confederation of West River and Wyoming landowners and environmental groups were the most vocal opponents, the BNSF did work hard quietly to kill the deal, Schieffer insists.
He said he knows this “from talking to people who were directly involved … and actually from customers.”
“They have been working long and hard on it both in Washington, D.C., and with customers,” he said.
BNSF spokesman Patrick Hiatte declined to directly address Schieffer’s claim. He referred to comments BNSF CEO Matt Rose made at a RailTrends Conference in October 2006 and a filing from BNSF to the federal Surface Transportation Board in December of that year.
Rose told RailTrends participants that large federal loans would undercut the market-based model under which railroads operate.
“The example of this is the DM&E,” he said.
“If the government allows nonmarket-based loans of this magnitude for certain carriers, that will have a negative effect on railroads’ ability to continue to invest private capital.
“Why, given the challenges to our nation’s economy, would the federal government be putting taxpayer money in the billions of dollars range at risk while simultaneously inhibiting private investment?”
Two months later, BNSF told the Surface Transportation Board that if the DM&E were allowed to haul coal on its sister line, the Iowa Chicago & Eastern, it would result in significant delays to BNSF trains entering Chicago. The BNSF filing also questioned whether the board, which regulates rail in the U.S., adequately studied the environmental impact of allowing the DM&E to haul coal on the IC&E before granting it approval to do so.
Schieffer also said a BNSF lobbyist last year circulated through Congress a white paper without attribution that made the points about market distortion and taxpayer risk.
“A congressman asked Matt Rose about it at a hearing out there, and he didn’t know anything about it. Then a day or two later, in a letter or a phone call, they acknowledged it was from their lobbyist and asked him to withdraw it,” Schieffer said.
He also called the BNSF hypocritical for using FRA loans and grants “to compete against us for South Dakota corn and wheat traffic. … That’s good public policy, as opposed to bad public policy when somebody uses it against them.”
The BNSF does have a long corporate history with public largesse. In 1864, the federal government gave the railroad’s predecessor, the Northern Pacific, right-of-way from Lake Superior to the Pacific Ocean and 40 million acres of public land to sell to raise capital to build that railroad.