Monday, January 6, 2014

Coal likely focus of new railroad

Southern Dakota's Denny Daugaard is a Duck Dynasty devotee: if only he knew something about the new Rapid City, Pierre, and Eastern Railroad.
“I am hopeful this sale to a short-line operator is in the best interest of the state,” said Gov. Daugaard. “I am also hopeful that our questions about the Canadian Pacific’s obligations to improve the line will be answered." According to the Canadian Press, the activist investor who pushed for the shake-up was Pershing Square Capital Management’s Bill Ackman. He called the DM&E purchase by CP a mistake. Daugaard said his concerns include the buyer’s ability to maintain and operate the line between Pierre and Rapid City; to maintain healthy competition in shipping rates and market access; to provide a high level of service to South Dakota shippers and producers; and to providing long-term service in South Dakota. [Milo Dailey, Rapid City Journal]
Peter Harriman of the Sioux Falls Argus Leader adds:
But according to Kevin Schieffer, former chief executive officer of the DM&E, even at that size, it did not generate enough revenue to pay for more than $300 million in necessary infrastructure upgrades to track in South Dakota that was, in some cases, more than a century old. Without such improvements, the line gradually would fall apart, Schieffer said. However, last year, Gov. Dennis Daugaard protested to the federal Surface Transportation Board that Canadian Pacific had not made good on its promise. The Canadian Pacific maintained operations centers in Huron and Rapid City, and it operated across South Dakota with about 380 employees. [Harriman, Railroad's new owner reassure South Dakota]
The Wikipedia entry for DM&E speculates that Daugaard may have the authority to prevent its sale to G&W.

Yeah, right.
Genesee & Wyoming Inc’s (NYSE:GWR) stock moved up as it has decided to pay Canadian Pacific Railway Ltd $210 million to purchase around 660 miles of rail operations mainly located in South Dakota and Minnesota. The company announced that this asset sale, anticipated to close in the middle of the year, will result in Canadian Pacific taking a forecasted $240 million write down. [Steve Grey, InvestorWired]
Todd Yeaton, a member of the South Dakota Railroad Board, concedes the challenges posed by West River geology but says Genesse & Wyoming has a "pretty good reputation in the rail business" according to WNAX.

This pending sale has coal written all over it.
To help pay for $405 million in environmental controls on the coal-fired Big Stone Power plant in South Dakota, Otter Tail Power Co. of Fergus Falls will raise rates nearly 4 percent Jan. 1 for its 60,600 Minnesota customers. [David Shaffer, Otter Tail customers will pay for pollution controls, StarTribune]
The polar vortex generating big bucks for a climate killer like Big Stone is intersecting with average temperatures in Minnesota rising steadily since 1970.

A recent derailment in North Dakota caused some concern that coal shipments to the Big Stone power plant could be disrupted.

Milo Dailey also reports in his piece that Belle Fourche is worried rail service could be altered in some way by the sale. Yet to be known is whether G&W will buy right of way beyond Colony, Wyoming, where Halliburton loads bentonite, to the coal fields and whether 100-car coal trains will roll through Rapid City. Included in the sale is switching at Dakota Junction, Nebraska so G&W could be hauling coal and fracking sand through southwestern South Dakota by midyear.

The announcement of Canadian Pacific's intention to sell to Genesee and Wyoming comes after a series of CP mishaps including a derailment north of Rapid City.

Canadian Pacific will incur costs associated with lawsuits pending in the gigantic explosion and fire at Lac-Mégantic, Quebec on 6 July of last year.

The disposition of the abandoned Milwaukee Road right of way that runs roughly parallel to I-90 west of Chamberlain to Rapid City remains a mystery as the bridge over the Missouri River will not support heavy rail traffic. The eastern portion is operated by Dakota Southern.

3 comments:

Allen said...

I don't know how coal and frac sand come into the picture. Are their some potential sand mining sites along the line?

As for coal, as part of the sale the Canadian Pacific is retaining the right to expand into the Powder River Basin.

larry kurtz said...

Frack sand could be mined within a few miles of the track between Rapid City and Dakota Junction, Nebraska where coal could be loaded for the Big Stone plant.

larry kurtz said...

Canadian Pacific and Genesee/Wyoming are developing frac sand contracts.