Dakota, Minnesota and Eastern Railroad

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Dakota, Minnesota & Eastern Railroad
Reporting marks	DME
Locale	Iowa, Minnesota, Nebraska, South Dakota and Wyoming; United States
Dates of operation	1986–2007
Successor line	Canadian Pacific
Track gauge	4 ft 8½ in (1435 mm) (standard gauge)
Headquarters	Brookings, South Dakota (on 22nd Avenue)

Dakota, Minnesota and Eastern Railroad (DM&E) (AAR reporting marks DME) is a Class II railroad operating across South Dakota and southern Minnesota in the northern plains of the United States. Portions of the railroad also extend into Wyoming, Nebraska and Iowa. DM&E and Iowa, Chicago and Eastern Railroad (IC&E) are both jointly managed by Cedar American Rail Holdings, making the combined system the largest Class II network in the US.^[1] Although Cedar American Rail Holdings manages both railroads, in reality it is a subsidiary of Dakota Minnesota & Eastern Railroad Corporation, but Iowa, Chicago and Eastern Railroad is a subsidiary of Cedar American Rail Holdings.

DM&E began operations on September 5, 1986 over tracks that were spun off from Chicago and North Western Railway in South Dakota and Minnesota. Much of the negotiations were handled by the office of Senator Larry Pressler and his legal counsel Kevin V. Schieffer. After a successful decade of growth for DM&E, Schieffer succeeded J. C. McIntyre as president of the railroad on November 7, 1996.

In 1997 DM&E announced plans to build into Wyoming's Powder River Basin to become the third railroad (after Burlington Northern and Santa Fe Railway and Union Pacific Railroad) to tap into the region's rich coal deposits. The Surface Transportation Board (STB) released the final Environmental Impact Statement (EIS) on November 19, 2001; with the final EIS in place and approval from the STB, the railroad has federal authority to construct the project.

DM&E purchased the assets of I&M Rail Link railroad in 2002, renaming it Iowa, Chicago and Eastern Railroad and combining its management and dispatching duties with those of DM&E under the holding company Cedar American Rail Holdings. Schieffer serves as president and CEO of Cedar as well as serving as president of DM&E. The combined system directly connects Chicago through Iowa to Kansas City, Minneapolis-St. Paul and continues as far west as Rapid City, South Dakota. Smaller branches extend into portions of Wisconsin, Wyoming and Nebraska.^[2]

In September 2007 it was announced that Canadian Pacific Railway (CP) would acquire the DM&E upon approval by the Surface Transportation Board of the US Department of Transportation. CP announced on October 4, 2007, that it has completed the financial transactions for the acquisition and will integrate the railroad operations once it receives STB approval.

Contents 1 1986–1996: startup and initial expansion 2 1997–2006: expansion into the Powder River Basin 2.1 Expansion plans 2.2 Initial approval and lawsuits 2.3 Further legal actions 2.4 Funding 3 2002–2007: consolidation with IC&E 4 Pending acquisition by CP Rail 5 Subdivisions 6 Rolling stock 7 Company officers 8 External links 9 References

[edit] 1986–1996: startup and initial expansion

In the early 1980s, Chicago and North Western Railway (CNW) announced plans to abandon a section of railroad through Minnesota and South Dakota that dates to 1859. Due to pressure from customers and Senator Larry Pressler from South Dakota, a deal was reached and announced on April 24, 1986,^[3] creating the Dakota, Minnesota and Eastern Railroad out of sections of CNW from Winona, Minnesota, to Rapid City, South Dakota. This deal also included buildings, rolling stock and locomotives, mostly rebuilt EMD SD9s, from the CNW. DM&E began operations on this track on September 5, 1986. The railroad was expanded in 1995 when it acquired additional former CNW branch lines from Rapid City, South Dakota, to Colony, Wyoming, and Crawford, Nebraska.^[1]

From startup to the railroad's 10 year anniversary in 1996, DM&E hauled nearly 500,000 carloads of freight, which includes 700 million bushels of grain. DM&E celebrated the anniversary with picnics and employee appreciation events and excursions in Waseca, Minnesota, and Pierre, South Dakota.^[4]

At the end of 1996, Kevin V. Schieffer, whom former United States President George H. W. Bush had appointed as US Attorney for South Dakota in 1991, became president of DM&E on November 7, 1996.^[3] Schieffer was no newcomer to the railroad, however, as he had first become involved with DM&E in 1983 when he worked to prevent the abandonment of the former CNW lines that eventually formed the first sections of DM&E's mainline. Maintaining the status quo on DM&E was not the fate that he had in mind for the railroad as he took the reins.^[5][6]

[edit] 1997–2006: expansion into the Powder River Basin

[edit] Expansion plans

In 1997, DM&E announced plans to expand into the Powder River Basin (PRB) in Wyoming and start providing unit coal train service from that area. The railroad filed an application for the expansion to the Surface Transportation Board (STB) on February 20, 1998. Burlington Northern Railroad built into this area in 1979, and Chicago and North Western Railway (CNW) built into the area by 1984 (a project that was completed by CNW's successor Union Pacific Railroad). DM&E would become the third railroad to tap into the coal deposits in the region.

DM&E's expansion would require the construction of 281 miles (452 km) of new track, upgrading 598 miles (962 km) of existing track (including all of the railroad's track in Minnesota), new interchange connections in Owatonna and Mankato, Minnesota, and three new rail yards.

This plan would be the largest new railroad construction in the United States since the completion of Milwaukee Road's Pacific extension to Seattle, Washington, in 1909.^[7]

This expansion has the potential of upgrading DM&E's status from AAR's Class II to Class I.

[edit] Initial approval and lawsuits

The STB approved the application on December 10 of that year pending completion of an Environmental Impact Statement (EIS), which was released by the STB on September 27, 2000.

An analysis of the plan by Minnesota's Dakota, Minnesota and Eastern Railroad Working Group in 2001 showed support among customers and freight shippers, but DM&E's expansion plan led to complaints among residents in communities along the railroad's right-of-way.^[7] While some communities welcomed the railroad's expansion plan as an opportunity for increased business within their own cities, other residents and businesses felt that roads in the area were not built with enough overpasses and underpasses to deal with the traffic flow problems that the longer and more frequent unit trains would produce at grade crossings. The objectors cited concerns of the general public in safely and quickly traversing their communities as well as the ability of emergency vehicles to cross the tracks to reach emergency scenes or hospitals. The city of Rochester, Minnesota, filed a lawsuit to force the railroad to build a bypass around the city; the bypass was estimated to cost around US$100 million.^[8][9][10]

While a bypass would remove the trains from sometimes crowded city streets, it would require purchasing land outside of the city that was privately owned. One resident summed up the problem saying that if the railroad didn't go through the city, "it would just go through someone else's place" in the country. Schieffer presented the railroad's view on this issue in a public meeting in Rochester saying:

"I don't think we have to go out and tell someone else, `We want to take your land instead of developing our own property because somebody thinks there might be a problem in the city.' If there's a problem in the city, then there's an opportunity for you to build. But before we establish that there is a problem, it's pretty hard for me to walk up to somebody's door and say, `Hi. I'm from the railroad and we're going to take your land.' I've got to do that out West, and it's not fun."^[11]

[edit] Further legal actions

After a period of public comment that lasted until March 16, 2001, and further review by the STB, the final EIS was issued on November 19, 2001. In this final approval, the STB agreed with DM&E that no new bypasses around cities would be required even though the cities of Rochester, Minnesota, Brookings and Pierre, South Dakota, had requested them. In 2003, a ruling by the United States Court of Appeals for the Eighth Circuit ordered the STB to re-examine potential environmental issues around Rochester. The STB's preliminary report, released in early 2005, noted that no additional steps were needed by the railroad to alleviate noise and vibration caused by the projected increase in train traffic.^[12][13]

The court upheld the STB's approval with stipulations for the new line's environmental impact, including the projected increase in the frequency of train horn soundings along the line. From the court's ruling, the STB prepared a Supplemental Environmental Impact Statement which sets forth mitigation strategies for the railroad. On February 15, 2006, the United States Surface Transportation Board (STB) announced its final approval of the railroad's 1998 application. The STB's approval is expected to be finalized after a 30 day waiting period.^[14][15]

In April 2004, DM&E was awarded the power of eminent domain in South Dakota by the United States Court of Appeals for the Eighth Circuit in Pierre, South Dakota. The ruling overturned part of South Dakota legislation passed in 1999 (two years after the railroad first announced its intentions to expand) that would have impaired railroad operations and construction in the state. This decision restores the legal process by which the railroad can effectively force landowners along the proposed new route to sell their land to the railroad.^[16]

[edit] Funding

With the final EIS in place and approval from the STB, DM&E is legally able to undertake the expansion as proposed. During the final negotiations over the Fiscal Year 2006 federal transportation bill, Senator John Thune, a Republican from South Dakota, tacked on language that would dramatically expand a federal loan program and help DM&E get a $2.5 billion government loan.

Senator Mark Dayton, a Minnesota Democrat who has taken the side of the Mayo Clinic, an opponent of the expansion, questioned the rail company's ability to repay the loan--one of the largest federal loans ever given to a private company, he says. "It's a real perversion of the process and the public interest", says Dayton. There was additional opposition from the city of Dubuque, Iowa, where an additional 5 to 9 100-car trains a day were anticipated over the current 6 trains a day.^[17] Kevin Schieffer, president and chief executive officer of the DM&E, says arguments against the project have no merit. "We are very solid financially", he adds. "The project has overwhelming support throughout our entire region."

The White House has tried to end the railroad loan program as an unnecessary giveaway to private companies. "In the event of a loan default, the federal government would be responsible for covering any losses, which could be significant", says a report by the Office of Management and Budget.^[18]

In August 2006, the FRA announced that it would adopt the environmental impact statements previously issued by the STB. The FRA opened a public comment period ending on October 10, 2006, after which a decision on DM&E's application would be made within a period of 90 days. Also in August 2006, the STB approved the creation of a subsidiary company, Wyoming, Dakota Railroad Properties, whose purpose is to perform the construction work and operate into the Powder River Basin. DM&E hopes the new subsidiary will ease the way toward gaining $4 billion in loan agreements and private investments toward the construction.^[19] While these processes were underway at the STB, DM&E began test shipments of coal by truck on September 7, 2006, from Wyoming to Rapid City, South Dakota, where it was then transloaded to trains for further shipment to industries in Chicago and universities in Illinois, Michigan and Ohio.^[3]

On February 26, 2007, the FRA rejected the $2.3 billion loan to DM&E.^[20] In announcing the decision, Administrator Joseph H. Boardman noted that the project proposal met many federal requirements for the loan but cited concerns that the railroad might not be able to handle cost overruns during construction or to repay such a hefty amount after construction is completed.^[21][22] While the loan was not approved, the later agreement of the Canadian Pacific Railway to acquire the DM&E (discussed below) will provide funding for immediate improvements and the ability to fund the Powder River project, given the strong balance sheet, available cash, profitability, and good credit of CP Rail.^[23][24]

[edit] 2002–2007: consolidation with IC&E

DM&E hauled nearly 60,000 carloads of various freight shipments in fiscal year 2002, serving approximately 130 customers along the railroad's mainline. Of these shipments, 53% were grains or grain products, 24% were bentonite and kaolin clay, 7% were cement and 5% were wood and lumber products; the remaining 11% were split among all other types of freight.^[6]

On February 21, 2002 DM&E announced that it would purchase the railroad assets of 1,700-mile (2,700 km) I&M Rail Link (IMRL) from its then current owners Washington Companies and Canadian Pacific Railway. DM&E renamed the IMRL property to Iowa, Chicago and Eastern Railroad (IC&E) and began operating it under that name on July 30, 2002.^[3] Although a purchase price was not stated in the original announcement, an article in the May 2002 Trains Magazine suggests that several industry sources believed the total to be around $150 million.^[25]

DM&E and IC&E combined management under the holding company Cedar American Rail Holdings. Locomotives of both railroads were given a unified paint scheme (see below) and interchanges were streamlined between the two railroads. The administration of both railroads is handled by Cedar, further streamlining processes between the two railroads. As a result, the combined DM&E/IC&E system makes up the largest Class II railroad (by route-miles) in the United States; it is also the eighth largest system of all American railroads and the only system with direct rail connections with all Class I railroads in North America.

In its first twenty years of operations, the railroad's revenues had increased more than tenfold, from US$22 million in 1987 to US$258 million in 2006, with US$290 million projected in 2007 and US$340 million for 2008.^[26][24] Its operating ratio (the ratio of operating expenses to revenues) declined to 70.2% in 2006 and was projected to improve further to 67.6% in 2007.^[27] Its traffic was a mix of agricultural, coal, and industrial products,^[27] and ethanol shipments were projected to exceed one billion gallons in 2008.^[26]

[edit] Pending acquisition by CP Rail

On September 4, 2007, the Canadian Pacific Railway (CP Rail) announced it was acquiring the DME Railroad from its present owners, London-based Electra Private Equity, for US$1.48 billion, and future payments of over $1.0 billion contingent on commencement of construction on the Powder River extension and specified volumes of coal shipments from the Powder River basin.^[28] The transaction will include the ICE and other affiliated companies.^[26] The merger is an "end-to-end" consolidation; the lines presently interchange at three points, including the Winona, Minnesota connection between the DM&E's main line across southern Minnesota and CP Rail's Chicago main.^[23][27] Kevin Schieffer, president of the DM&E, has called CP the DM&E's "natural partner" and the transaction a "natural fit".^[23]

The acquisition will give CP Rail access to shipments of agricultural products and ethanol in addition to coal from the Wyoming coal fields. CP has stated its intention to use this purchase to gain access to the Powder River and ship coal to midwestern and eastern utilities. The transaction is subject to approval of the Surface Transportation Board, which is expected to take a year.^[23] Securities analysts have stated that competing railroads for Powder River coal, the Union Pacific and BNSF, could challenge the acquisition and delay STB approval, but are unlikely to prevent it.^[29][30] At least until approval is received, the DM&E will continue to operate as a separate entity.^[31]

On October 4, 2007, CP announced that it has completed the financial transactions to acquire the DM&E and subsidiaries. Control of DM&E has been placed into a voting trust with Richard Hamlin appointed as trustee; the trust will remain in effect until the STB issues its decision on the acquisition. CP plans to integrate DM&E's operations once it receives STB approval, which is expected within a year.^[32]

[edit] Subdivisions

DM&E currently operates over 12 subdivisions:

• Waseca Subdivision — Winona to Waseca, Minnesota
• Hartland Subdivision — Waseca, Minnesota to Mason City, Iowa
• Tracy Subdivision — Waseca to Tracy, Minnesota
• Huron Subdivision — Tracy, Minnesota to Huron, South Dakota
• Yale Spur Subdivision — Huron to Watertown, South Dakota
• Redfield Subdivision — Aberdeen to Wolsey, South Dakota
• Mansfield Subdivision — Redfield to Mansfield, South Dakota
• Pierre Subdivision — Huron to Pierre, South Dakota
• Onida Subdivision — Blunt to Onida, South Dakota
• PRC Subdivision — Pierre to Rapid City, South Dakota
• Black Hills Subdivision — Bentonite (at Colony, SD) to Rapid City to Dakota Junction, South Dakota
• Crawford Subdivision — Chadron to Crawford, Nebraska

[edit] Rolling stock

DM&E originally purchased used first-generation locomotives from a variety of railroads; in the early years it was more common to see a locomotive with a Milwaukee Road or Chicago and North Western Railway paint scheme than a DM&E paint scheme. Over the years, the locomotives were repainted, and many of them are now in DM&E's paint scheme (which is closely mirrored by that of sister Iowa, Chicago and Eastern Railroad) of blue with a yellow stripe along its length.

DM&E eventually assigns names to all of its locomotives when they are repainted, usually after locations along its right-of-way, but a few exceptions have been named for people (like road number 550, named after Senator Larry Pressler). All of the first-generation diesel locomotives purchased from Chicago and North Western and Milwaukee Road have since been replaced with more recent locomotives, although the newer locomotives were also bought used.

In 1987, at the railroad's one year anniversary, DM&E owned 39 locomotives and leased five more for a total of 44 locomotives rostered. By the railroad's tenth anniversary in 1996, DM&E owned 69 locomotives and owned or leased over 1,500 cars including over 600 covered hoppers for grain and cement shipments. In 2001, the number of locomotives owned stayed about the same, while the number of cars increased to about 5,000 with 52% of them in dedicated grain service.^[3]

[edit] Company officers

DM&E has so far had two men serve as president of the railroad:

• J. C. (Pete) McIntyre (1986–1996) began his railroad career in 1953, eventually working for Chicago and North Western in the early 1980s. When DM&E was formed in 1986, McIntyre became the new railroad's first president.^[5][3]
• Kevin V. Schieffer (1996–present) served as counsel for Senator Larry Pressler starting in 1982. Schieffer began working with DM&E business in 1983 when he worked to prevent the abandonment of C&NW branch lines that would eventually form the beginnings of DM&E. He initiated the negotiations in 1985 that led to DM&E's creation. He was promoted to Chief of Staff for Senator Pressler in 1987, a position he held until 1991 when United States President George H. W. Bush appointed Schieffer to be US Attorney for South Dakota. In 1993, Schieffer left his US Attorney post and became the legal counsel for DM&E; as legal counsel for the railroad, he oversaw the railroad's recapitalization in 1994 and the acquisition of C&NW's Colony line. He held this position until he was unanimously elected president of the railroad on November 7, 1996.^[5]

[edit] External links

• DM&E official website
• South Dakota Office of Railroads: DM&E facts
• Surface Transportation Board, DM&E Final Environmental Impact Statement
• DM&E photo gallery
• Unofficial DM&E Home Page

[edit] References

• Glischinski, Steve (February 2002), Coming: A third Powder River Basin player, Trains Magazine, p. 10-11.
• Hetland, Cara; Minnesota Public Radio (June 11, 2003), DM&E builds railroad empire while it awaits court approval. Retrieved January 5, 2005.

v • d • e Class II railroads of the United States Current (operating) ARR, BPRR, CSS, DME, EJE, FEC, IAIS, ICE, IHB, INRD, ISG, LIRR, MMA, MRL, PAL, PAR, PW, TMTC, TM, WE, WSOR Former or fallen flag BOCT, BLE, CC, CMNW, CRN, DMIR, GWWR, IMRL, MAA, MGA, MNS, OKKT, SI, WC See also: List of U.S. Class II railroads