Kiger's Notebook

Railroad puts brakes on DM&E expansion plan

Here's some from a good piece by my colleague Mike Klein. It looks like the more-than-a-decade battle to keep the DM&E from running more coal through Rochester may have come to an end with a whimper rather than a bang.

Of course, now that silca sand and fraccing is hot, that might become the new coal and be a future reason to ramp up. Life on the rails is unpredictable.

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Canadian Pacific is dropping plans to extend its rail network into the Powder River Basin, abruptly ending Rochester's decades-long fight to stop the increased coal train traffic through town planned as part of that $6 billion plan.

The railroad's announcement this morning will likely be followed by more news, as new CEO Hunter Harrison will be meeting with executives Tuesday to announce plans moving forward, spokesman Ed Greenberg said. The railroad has been reviewing its entire network, he said.

When CP acquired the Dakota Minnesota & Eastern railroad in 2007 for $1.48 billion, it also acquired the option to build a 260-mile extension of its network into coal mines in the Powder River Basin in Wyoming. Now Canadian Pacific will take a fourth quarter charge of approximately $180 million on its books, on its option to build there.

"It is CP’s intention to defer indefinitely plans to extend its rail network into the PRB coal mines based on continued deterioration in the market for domestic thermal coal, including a sharp deterioration in 2012," the company said.

The low price and increased availability of natural gas has cut into coal usage in recent years.

"We believe it is a prudent decision to defer the network into the Powder River Basin when you consider the long-term prospects of coal," said Canadian Pacific spokesman Ed Greenberg.

Olmsted County Commissioner Ken Brown said the announcement is a "good deal" for Rochester, but he cautioned that Canadian Pacific is trying to sell those tracks, and a new buyer could proceed with the Powder River Basin plan.

"In the future, who knows what could happen," said Brown, who serves on the Rochester Coalition opposing the increased rail traffic. "It could be a long time before anything could happen. It looks like it's not something to worry about imminently. In the future, if they sell it, maybe it will be, but that's down the road."

Right now, Canadian Pacific moves about about two to four trains every 24 hours through the Rochester area with "mixed freight," mainly steel and grain.

Rochester’s history of conflict with DM&E dates to 1998, when the railroad announced its plans to extend its line 260 miles west to coal fields in Wyoming’s Powder River Basin. The coal-line plan alarmed Rochester-area officials because of the likelihood it would bring increased and heavier, faster traffic through the city.

The Mayo Clinic, the city of Rochester, Olmsted County and the Rochester Area Chamber of Commerce teamed up to form the Rochester Coalition to oppose the bypass.

Will Canadian Pacific sell DM&E?

It has been long time since DM&E - the one-time nemesis of Mayo Clinic and the City of Rochester - has been in the news.

So I couldn't resist posting this. Evidently, a guy trying to engineer the future of Canadian Pacific railroad thinks buying DM&E was a "blunder" and CP should dump the pathway into the Powder River Basin's treasure chest of coal.

Here's is some from a Bloomberg News article by Frederic Tomesco and Natalie Doss:

William Ackman, the investor seeking a management change at Canadian Pacific Railway Ltd., said his proposed chief would consider selling a rail carrier acquired for $1.48 billion in 2008.

Dakota, Minnesota & Eastern Railroad Corp. cost more than it was worth, Ackman said yesterday in an interview after urging Canadian Pacific shareholders to back Hunter Harrison, his choice to be chief executive officer. Ackman's Pershing Square Capital Management LP is Canadian Pacific's biggest investor.

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Ackman cited the DM&E deal as an example of poor decision making that he said would be remedied by ousting CEO Fred Green and hiring Harrison, the retired chief of Canadian National Railway Co.

Calgary-based Canadian Pacific targeted the DM&E to expand access to U.S. Midwest ethanol and coal markets.

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The railroad agreed to buy Sioux Falls, South Dakota-based DM&E in 2007 and won U.S. approval for the transaction the following year. Before the purchase, closely held DM&E had planned to spend $6 billion on a new line into Wyoming's Powder River Basin, where U.S. carriers Union Pacific Corp. and Burlington Northern Santa Fe load coal from the area's mines.

Court upholds CP's DM&E railroad buy

Here's some from an article by William McQuillen for Bloomberg about the legal appeal of Canadian Pacific picking up DM&E railroad:

Canadian Pacific Railway Ltd.’s acquisition of the Dakota, Minnesota & Eastern Railroad Corp. in 2008 was upheld by an appeals court, which rejected challenges by the Sierra Club and Chicago’s commuter rail agency.

The U.S. Court of Appeals for the District of Columbia today said the Sierra Club had no stake in the matter that would allow it to sue, and rebuffed claims by the agency, known as Metra, that the Surface Transportation Board abused its discretion in approving the purchase.

Both plaintiffs claimed the board’s approval was premature. Canada’s second-largest railroad won U.S. regulatory approval for the deal in September 2008.

The company paid $1.48 billion for DM&E to expand its access to ethanol and coal markets in the U.S. Midwest.

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Canadian Pacific, based in Calgary, rose 80 cents to $58.85 at 11:18 a.m. in New York Stock Exchange composite trading.

CP Railway: Cut spending by 5%, still $100 M for DM&E fixes

Here's a missive from our neighbors to the north.  Dakota, Minnesota & Eastern Railroad Corp.'s new owner says it needs to cut 5% in capital spending in 2009. It still has $100 million  budget for DM&E upgrades.

Here's some from Bloomberg's railroad man in Toronto, Hugo Miller:

The reduction of C$200 million ($162 million) will push next year's budget to as low as 

C$800 million, based on projected expenditures that include DM&E, Chief Financial Officer Kathryn McQuade said today on a conference call.
``I do not think it would be prudent'' to forecast earnings because of North American economic weakness, fuel-price volatility and the value of the Canadian dollar, she told investors. Profit next year may be C$4.74 a share, based on the average of 20 analysts' estimates compiled by Bloomberg.
Canada's second-largest railroad is reining in spending after posting a 21 percent drop in quarterly profit last month. Canadian Pacific has been hurt by the economic slump in the U.S., where it gets a fifth of revenue, as builders and lumber companies pare shipments.

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Here's  something from a story by Brent Jang, transportation report @ The Globe and Mail newspaper in Toronto:

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In an internal memo to staff, CPR chief executive officer Fred Green 
named Vernon Graham as DM&E president, replacing Kevin Schieffer, who 
resigned last month.

"There are significant opportunities to reinforce the DM&E's 
profitability by leveraging our information and operating systems, 
our purchasing power and our safety practices," Mr. Green 
said. "There is considerable work ahead."
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CPR placed DM&E into an independent voting trust in October, 2007, 
after it bought the regional railway for $1.5-billion (U.S.) from a 
group of private equity firms. DM&E, which began operating as a 
separate entity within CPR two weeks ago, sought in the past to 
embark on a massive Wyoming venture to haul thermal coal, which is 
used to fuel plants that generate electricity.

Mr. Graham, CPR's engineering vice-president in charge of transition 
plans for DM&E, will be based in Minneapolis, a key CPR hub in the 
U.S. Midwest, although an office is being maintained in DM&E's South 
Dakota headquarters in Sioux Falls. Mr. Graham reports to Kathryn 
McQuade, CPR executive vice-president and chief financial officer.

Calgary-based CPR has made no decision on whether to proceed with the 
coal expansion route, but analysts say the railway will need to find 
partners to help finance the $6-billion required in capital spending, 
including installing and rebuilding tracks from Wyoming's Powder 
River coal basin to DM&E's South Dakota lines.

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It could take five to 10 years before CPR makes a decision on the 
Powder River project, assuming it is able to win over critics such as 
the Mayo Clinic in Rochester, Minn., where civic leaders are opposed 
to increased freight traffic on tracks near the renowned hospital.

DM&E telephone survey?

Anybody else out there getting survey calls about the DM&E railroad and its impact on Rochester?

Here's some from a note I got from a reader today:

Just something I found kind of interesting. I got a call last night from a survey outfit--KMG?--all about how I felt about DM&E and the impact I felt it might have on Rochester's quality of life.

The uptake is that I got the impression that the survey was commissioned by CP and they're looking for ways to spin the results. It didn't quite qualify as a push-poll, but close. The questions were phrased just curiously enough to feel like they wanted the answers to lean in DM&E's favor.

Questions like, "Do you agree with the statement, 'I trust DM&E's new owner, Canadian-Pacific, to work with the community to address safety concerns more than I did the previous owner.'?"

They also asked about my level of concern (major, minor, not at all) that more high-speed trains will adversely affect the effort to revitalize the downtown business district. But that last part was asked after already asking my level of concern for serious accidents and the impeding of emergency vehicles, making my concern for the business district seem minor in comparison.

I'm interested to hear if anybody else has had a call like this and if they remember the survey company name.

Could be interesting following the recent story about Mayo Clinic mulling a bypass again.

Mayo Clinic eyes DM&E bypass again

In case you haven't see the print edition yet today, here's an interesting (to me at least) re-appearanace of an old issue. Matt Stolle did a great job rounding this up.

Mayo Clinic has hired an engineering firm to investigate what long has been considered a dead issue: The possibility of a bypass route around Rochester for coal-bearing trains heading to markets east.

The news came to light in a debate Thursday when one of the participants, congressional Republican nominee Brian Davis, revealed that Mayo has hired a railroad engineering firm to evaluate the possibility of a bypass route.

Davis, a Mayo Clinic physician who is challenging Democratic Rep. Tim Walz for his congressional seat, said he was told of the development in a teleconference held in late August with two Mayo officials who gave him permission to disclose the development should the occasion arise.

Davis declined to name the two Mayo officials in a later interview, but said one was in Washington and the other was a Mayo legal adviser. The briefing was provided to Davis, because of his status as a congressional candidate.

The chances of a bypass have long been considered a dead issue. In 2002, Federal Surface Transportation Board declined to order Dakota, Minnesota & Eastern Railroad to build a bypass around Rochester.

At the time, DM&E was pushing expansion plans that called for running scores of trains carrying low-sulfur coal from Wyoming’s Powder River Basin through the heart of Rochester -- a prospect Mayo warned threatened the clinic and its patients.

In September, Canadian Pacific agreed to buy DM&E, a year after the Federal Railroad Administration rejected the South Dakota-based railroad’s request for a $2.3 billion loan.

Chris Gade, a Mayo spokesman, said the clinic hired a firm to look at the possibilities “for in-city mitigation, along with other options, including outside the city.” Gade said. “There’s a whole range of options that are being explored.”

Gade added that Canadian Pacific was aware of the engineering study, but he did not know the railroad’s attitude toward it. Canadian Pacific did not return calls seeking comment Friday.

Schieffer chugs away from DM&E

So would this be called a Golden Caboose?

The top executive and architect of the pending expansion of the Dakota Minnesota & Eastern Railroad has left the company, leaving management to its new owner.

Kevin Schieffer no longer is with DM&E, the Canadian Pacific Railway announced late Tuesday. Schieffer broke with the railroad “to pursue other opportunities,” about 31⁄2 weeks before CP will acquire the smaller railroad, based in Sioux Falls, S.D.

Formal approval from the U.S. Surface Transportation Board for Canadian Pacific’s purchase of control of DM&E came on Sept. 30. The actual acquisition occurs on Oct. 30.

“We view it (Schieffer’s departure) as appropriate, given our experience in the past,” said Chris Gade, a spokesman for Mayo Clinic and for the Rochester Coalition, which has battled with Schieffer for years over DM&E’s plans in the Rochester area.

Representatives from Mayo and the coalition have spoken with Canadian Pacific officials. “We look forward and continue to have dialogue with the Canadian Pacific,” Gade said.

Mayo Clinic + Huge coal company

Here's an interesting piece from my old stomping grounds – Gillette, Wyo.

Coal companies in the Powder River Basin (Of DM&E fame) are looking for best healthcare for workers. That means the world's top coal producer is forgoing send its workers to the local hospital for treatment and are sending them to Mayo Clinic and elsewhere.

Gillette has a hospital is partially public owned through the county. That means the doctors salaries are public information, which made us newspaper employees popular there. heh.

Anyway, here's some from the Bloomberg news story:

Ken Ferguson, 54, maintains the bulldozers and heavy trucks that haul coal at the Belle Ayr mine near Gillette, Wyoming. In return, his employer, Foundation Coal Holdings Inc., provides his family with the best medical care it can buy.

Ferguson's wife, Shanna, had her colon removed last year because of chronic inflammatory disease. Foundation sent her 700 miles away to the top-ranked Mayo Clinic in Rochester, Minnesota. The company covered the $85,000 bill for the operation and follow-up reconstructive surgery and even paid for Ken's motel.

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The coal producer says it has found an unconventional way to cut health costs: Seek out the nation's best care and give workers incentives to use it. About two-thirds of operations have proven to be cheaper at better-rated hospitals out of state. Even when the price was higher, the Linthicum Heights, Maryland-based company saved money by reducing misdiagnoses, complications and repeat procedures.

Health-care costs for an average employee at Foundation's two Wyoming mines have dropped about 5 percent a year since the program took full effect in 2005, while U.S. spending rose about 7 percent annually. As Foundation's Wyoming workforce grew, its total medical bills remained steady at about $5.5 million a year.

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Peabody Energy Corp., which is based in St. Louis and is the world's largest coal producer, has joined Foundation in offering the benefits program. The company has signed up the workers at its surface-mining operations in Wyoming's Powder River Basin.

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Robert Morasko, chief executive officer of the Campbell County Memorial Hospital in Gillette, said the facility provided excellent care to its patients at low prices.

``There's no question our prices are competitive,'' he said. ``The coal companies do use us for a lot of surgeries. There are some isolated cases where they don't.''

S.D. judge ruling = delay for DM&E

Here's an interesting tidbit from South Dakota:

Former South Dakota Supreme Court Chief Justice Robert Miller is questioning the legality of a 2008 state law aimed at speeding up the eminent domain process.

At a hearing this week, Miller agreed with landowners who want more time to prepare for a hearing on the Dakota, Minnesota and Eastern Railroad's application to condemn land for its proposed $6 billion coal train and rail renovation project.

Miller is the hearing officer in the DM&E application. His ruling delays a Sept. 22 state Transportation Commission hearing on the matter.

The railroad applied to use eminent domain for its project. The 2008 Legislature passed a law saying the process must be completed within 90 days from application.

Miller says he doesn't intend to "fully or blindly comply with or enforce the 90-day limitation" because he considers it unconstitutional.

DM&E President Kevin Schieffer says the decision is disappointing and is another delay.

DM&E + union + 3 years = tentative deal

It sounds like DM&E and the United Transportation Union are almost on the track these days.

Here's a snippet from Progressive Railroading.com:

After more than three years of negotiations and mediation, the Dakota, Minnesota & Eastern Railroad Corp. (DM&E) and United Transportation Union (UTU) have reached a tentative agreement.

The pact calls for wage increases and bonuses, according to the union.

"Our main objective was a quality of life provision for road crews, which we achieved," said UTU Assistant President Arty Martin in a prepared statement.

The DM&E and IC&E operate a network totaling 2,500 miles of track in eight upper Midwest states.