Dakota, Minnesota and Eastern Railroad

The Dakota, Minnesota and Eastern Railroad (reporting mark DME) is a wholly owned U.S. subsidiary of the Canadian Pacific Kansas City.[1] Before its purchase, it was the largest Class II railroad in the United States,[2] operating across South Dakota and southern Minnesota in the Northern Plains of the United States. Portions of the railroad also extended into Wyoming, Nebraska, Iowa, and Illinois. It interchanged with all seven U.S. Class I railroads.

Dakota, Minnesota and Eastern Railroad
DME 4004 and 4000 at Davis Junction, Illinois
Overview
HeadquartersCPKC Plaza
Minneapolis, Minnesota
Reporting markDME
LocaleIowa, Illinois, Minnesota, Nebraska, South Dakota and Wyoming; United States
Dates of operation1986–2008
SuccessorCanadian Pacific Railway,
Rapid City, Pierre and Eastern Railroad
Technical
Track gauge4 ft 8+1⁄2 in (1,435 mm) standard gauge

The DM&E began operations on September 5, 1986, over trackage spun off from the Chicago and North Western Transportation Company in South Dakota and Minnesota. The DM&E purchased the assets of I&M Rail Link railroad in 2002, renaming it Iowa, Chicago and Eastern Railroad. DM&E combined its management and dispatching duties with those of ICE under the holding company Cedar American Rail Holdings. The combined system connected Chicago through Iowa to Kansas City, Minneapolis-St. Paul and continued west to Rapid City, South Dakota. Smaller branches extended into Wisconsin, Wyoming and Nebraska.[3]

In September 2007 it was announced that Canadian Pacific Railway would acquire the DM&E upon approval by the Surface Transportation Board of the US Department of Transportation. The STB announced its approval of the purchase plan on September 30, 2008.[4][5][6] Lines west of Tracy, Minnesota were sold to Genesee & Wyoming in 2014 to form the Rapid City, Pierre and Eastern Railroad.[7]

1986–1996: Startup and initial expansion

In 1983, the Chicago and North Western Railway (CNW) announced plans to abandon a section of railroad between Pierre, South Dakota and Rapid City.[8] Due to pressure from customers and Senator Larry Pressler from South Dakota, a deal was reached and announced on April 24, 1986,[9] to purchase divisions of the CNW from Winona, Minnesota, to Rapid City, creating the Dakota, Minnesota and Eastern Railroad.[8] This deal also included buildings, rolling stock and locomotives, mostly rebuilt EMD SD9s, from the CNW. Many of the negotiations were handled by the office of Senator Larry Pressler and his legal counsel Kevin V. Schieffer. After DM&E's successful first decade, Schieffer succeeded J. C. McIntyre as president of the railroad on November 7, 1996.

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, to Colony, Wyoming, and Crawford, Nebraska.[10] That same year, the CNW ceased to exist after being merged into Union Pacific.

From startup to the railroad's ten-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.[11]

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.[9] Schieffer was no newcomer to the railroad; he first became 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.[12][13]

1997–2006: plans for expansion into the Powder River Basin

Expansion plans

In 1997, DM&E announced plans to expand into the Powder River Basin (PRB) in Wyoming and provide unit coal train service from that area.[14] 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 the Chicago and North Western Railway (CNW) also sought to access the PRB coalfields, a project accomplished by CNW's successor Union Pacific Railroad.[15] 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 mainline track in Minnesota), new mainline connections at Owatonna, and Mankato, Minnesota, and three new rail yards.[14] The plan would be the largest new railroad construction in the United States since the completion of the Chicago, Milwaukee, St. Paul and Pacific Railroad (Milwaukee Road)'s Pacific extension to Seattle, Washington, in 1909.[14]

Initial approval

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.[14] 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 with the STB to compel the railroad to build a bypass around the city as a condition to granting the railroad permission to build the Powder River extension. The bypass was estimated to cost around US$100 million.[16][17]

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 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.[18][19]

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 issued a Supplemental Environmental Impact Statement which set forth mitigation strategies for the railroad. On February 15, 2006, the STB announced its final approval of the railroad's 1998 application.[20][21]

In April 2004, United States Court of Appeals for the Eighth Circuit upheld a lower court's actions in overturning 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. The decision restored the legal process by which the railroad could effectively force landowners along the proposed new route to sell their land to the railroad.[22]

Funding

With the final EIS in place and approval from the STB, DM&E had the authority to undertake the expansion as proposed, but needed financing. On February 26, 2007, the FRA rejected a proposed $2.3 billion loan to DM&E.[23][24] 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 the loan after construction was completed.[23][25]

2002–2007: consolidation with IC&E
DM&E and IC&E combined route map as of 2002.

DM&E hauled nearly 60,000 carloads of freight 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.[13]

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-owner The Washington Companies. DM&E renamed the IMRL property to Iowa, Chicago and Eastern Railroad (IC&E) and began its on July 30, 2002.[9] A purchase price was not stated in the original announcement, but an article in the May 2002 Trains Magazine reported that several industry sources believed the total to be around $150 million.[26]

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 and interchanges were streamlined between the two railroads. The administration of both railroads was handled by Cedar, further streamlining processes between the two railroads. The combined DM&E–IC&E system made up the largest Class II railroad (by route-miles) in the United States; it was 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 $22 million in 1987 to $258 million in 2006, with $290 million projected in 2007 and $340 million for 2008.[27][28] 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.[29] Its traffic was a mix of agricultural, coal, and industrial products,[29] and ethanol shipments were projected to exceed one billion gallons in 2008.[28]

Acquisition by Canadian Pacific

On September 4, 2007, Canadian Pacific (CP) announced it was acquiring the DM&E from its 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.[30] The transaction included the ICE and other affiliated companies.[28] The merger was an "end-to-end" consolidation; the lines had interchanged at three points, including the Winona, Minnesota, connection between the DM&E's main line across southern Minnesota and CP's Chicago main.[29][31] Kevin Schieffer, then-president of the DM&E, called CP the DM&E's "natural partner" and the transaction a "natural fit".[31]

The acquisition gave CP access to shipments of agricultural products and ethanol in addition to coal from the Wyoming coal fields. CP stated its intention to the purchase to gain access to the Powder River and ship coal to Midwestern and Eastern utilities. The transaction required the approval of the Surface Transportation Board, which was expected to take a year.[31] Securities analysts said that competing railroads for Powder River coal, the Union Pacific and BNSF, could challenge the acquisition and delay STB approval, but were unlikely to have prevented it.[32][33] Until approval, the DM&E continued to operate as a separate entity.[34]

On October 4, 2007, CP announced that it had completed the financial transactions to acquire the DM&E and its subsidiaries. Control of DM&E was placed into a voting trust to remain in effect until the STB issued its decision on the acquisition. Richard Hamlin was appointed its trustee. CP planned to integrate DM&E's operations once it received STB approval.[35] CP expected STB approval of the purchase in October 2008.[36] The STB announced its approval of the purchase plan on September 30, 2008, with no further conditions. CP assumed control of DM&E and IC&E on October 30, 2008, the effective date of the purchase.[4][5][37]

Western Minnesota and South Dakota divisions to RCPE

On December 3, 2012, CP announced it was indefinitely placing on hold plans for building new trackage into the Powder River Basin.[38] The next day the railroad announced its intention to sell the entire ex-DM&E west of Tracy, Minnesota, roughly 700 miles (1,100 km) of track.[39] On January 2, 2014, CP announced that all track west of Tracy, Minnesota, was to be sold to Rapid City, Pierre and Eastern Railroad, a subsidiary of Genesee & Wyoming, a short line operator. The sale was completed on May 30, 2014, for $210 million. Most of the Rapid City, Pierre and Eastern's employees came over from the DM&E.

Subdivisions

DM&E operated over twelve subdivisions. The divisions were located in Minnesota, South Dakota, Iowa, and Nebraska. As of 2014, three are retained by the Canadian Pacific, nine are part of the Rapid City, Pierre and Eastern.

Canadian Pacific

Former DM&E to RCPE
A lashup of HLCX, DME and ICE locomotives at Dubuque, Iowa

Rolling stock
DME 4006, City of Balaton, an EMD GP40.

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, many with DM&E's paint scheme of blue with a yellow stripe along its length (it closely mirrored by that of sister railroad, IC&E).

DM&E eventually assigned names to all of its locomotives when they were 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.

DME 49328, a covered hopper.

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.[9]

Company officers

DM&E has had three 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.[9][12][40]
  • Kevin V. Schieffer (1996–2008) 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 CNW 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 CNW's Colony line. He held this position until he was unanimously elected president of the railroad on November 7, 1996.[12][40] Schieffer left the DM&E on October 7, 2008, shortly after the Surface Transportation Board approved the proposed purchase of the railroad by Canadian Pacific; DM&E's COO Ed Terbell and CFO Kurt Feaster were named to manage the railroad until CP completed the acquisition October 30, 2008.
  • Vern Graham (2008–2010) was appointed president November 5, 2008.[41]

References
  1. CP 2019 Annual Report. Canadian Pacific Railway, February 20, 2020
  2. Hetland, Cara - DM&E sale may move expansion forward. MPR News, September 5, 2007
  3. Machalaba, Daniel (February 21, 2002). "DM&E Rail Set to Unveil Midwest Accord" (PDF). The Wall Street Journal. Archived from the original (PDF) on July 13, 2011. Retrieved 2009-08-04.
  4. "Surface Transportation Board Approves Canadian Pacific Railway's Acquisition of Control of the Dakota, Minnesota & Eastern Railroad, Subject to Conditions" (Press release). United States Surface Transportation Board. September 30, 2008. Archived from the original on May 27, 2009. Retrieved September 30, 2008.
  5. "Canadian Pacific welcomes STB approval" (Press release). Canadian Pacific. September 30, 2008. Archived from the original on May 27, 2009. Retrieved September 30, 2008.
  6. "Merger is now complete" (Press release). CP Rail. October 31, 2008.
  7. CP selling DM&E west end to Genesse & Wyoming. Associated Press, January 2, 2014
  8. Steve Glischinksi. Regional Railroads of the Midwest. Voyageur Press. p. 22. ISBN 978-1-61060-495-6.
  9. "The DM&E at 20". North Western Lines. Chicago and North Western Railway Historical Society (1): 14–25. 2007. ISSN 0279-5000.
  10. Cedar American Rail Holdings, Inc. (2004), Serving the Heartland of America (PDF). Retrieved August 4, 2009.
  11. Dakota, Minnesota and Eastern Railroad (September 13, 1996), DM&E Marks 10th Anniversary Archived 2004-12-10 at the Wayback Machine. Retrieved January 5, 2005.
  12. Dakota, Minnesota and Eastern Railroad (November 11, 1996), Schieffer named president and CEO of DM&E Railroad Archived 2005-02-12 at the Wayback Machine. Retrieved April 2, 2005.
  13. Dakota, Minnesota and Eastern Railroad, DM&E/PRB/IC&E Overview. Retrieved (August 4, 2009).
  14. "DM&E Expansion in Minnesota" (PDF). Dakota, Minnesota and Eastern Railroad Working Group; Minnesota Department of Transportation and Minnesota Planning. April 2001. Archived from the original (PDF) on August 7, 2011. Retrieved July 20, 2009.
  15. Strack, Don (March 21, 2008). "Western Railroad Properties, Inc. (WRPI)". UtahRails.net. Archived from the original on June 5, 2009. Retrieved July 20, 2009.
  16. Duff, Diane C., Alliance for Rail Competition (November 13, 1998), Letter of Support for DM&E. Retrieved January 5, 2005.
  17. Galbally, Erin, Minnesota Public Radio (March 11, 2002), DM&E – Towns on the line Archived 2005-11-19 at the Wayback Machine. Retrieved April 15, 2005.
  18. (July 2005), "STB says no further conditions needed on DM&E expansion", Trains Magazine, p. 20.
  19. Surface Transportation Board (2005), Dakota, Minnesota & Eastern Railroad Corporation construction into the Powder River Basin Archived 2006-09-23 at the Wayback Machine. Retrieved June 10, 2005.
  20. Railway Age (February 16, 2006), A "great day" for DM&E Archived December 10, 2005, at the Wayback Machine. Retrieved February 21, 2006.
  21. United States Surface Transportation Board (February 15, 2006), Surface Transportation [Board] issues final decision on "Dakota, Minnesota & Eastern's" Powder River Basin expansion project Archived 2006-05-07 at the Wayback Machine. Retrieved February 21, 2006.
  22. Kafka, Joe; Associated Press (April 15, 2004), Ruling moves railroad's plans forward (PDF), Argus Leader, Sioux Falls, South Dakota, p. 3B. Retrieved August 4, 2009.
  23. "FRA Administrator Denies DM&E Powder River Basin Loan Application Citing Unacceptable Risk to Federal Taxpayers" (Press release). United States Federal Railroad Administration. February 26, 2007. Archived from the original on July 13, 2009. Retrieved July 20, 2009.
  24. "Feds reject DM&E loan". Rochester Post-Bulletin. February 27, 2007. Archived from the original on September 12, 2012. Retrieved February 27, 2007.
  25. "FRA Rejects Dakota, Minnesota & Eastern Railroad's Loan Application". L.B. Foster. PR Newswire. 2007-02-27. Retrieved 2007-02-28.
  26. Glischinski, Steve (May 2002), DM&E becomes "a significant national player", Trains Magazine, p. 14.
  27. Daniel, Robert; Langlois, Shawn (2007-09-05). "Canadian Pacific expands into U.S. Midwest". marketwatch.com. Archived from the original on 2011-06-07. Retrieved 2009-08-04.
  28. "DM&E Announces Merger With Canadian Pacific Railway" (PDF) (Press release). dmerail.com. 2007-09-04. Archived from the original (PDF) on 2009-05-30. Retrieved 2009-08-04.
  29. "Investor Fact Sheet" (PDF). CP. 2007-09-04. Archived from the original (PDF) on September 26, 2007. Retrieved 2007-09-05.
  30. Goldfarb, Jeffrey (2007-09-05). "CP to Buy DM&E For at Least $1.5 Billion". The New York Times. Reuters. Retrieved 2007-09-05.
  31. "Canadian Pacific announces agreement to acquire DM&E Railroad" (Press release). CP. 2007-09-04. Archived from the original on 2007-09-28. Retrieved 2007-09-05.
  32. Greiling Keane, Angela (2007-09-05). "Union Pacific May Challenge DM&E Sale, Analyst Says (Update3)". Bloomberg. Archived from the original on 2007-09-30. Retrieved 2007-09-06.
  33. Miller, Hugo (2007-09-05). "Canadian Pacific to Buy Dakota Rail for $1.48 Billion (Update8)". Bloomberg. Archived from the original on 2008-06-01. Retrieved 2007-09-06.
  34. Pieters, Jeffrey (2007-09-06). "Transition from DM&E to Canadian Pacific will be gradual". Rochester Post-Bulletin. Archived from the original on 2007-09-27. Retrieved 2007-09-06.
  35. "Canadian Pacific completes acquisition of DM&E Railroad" (Press release). Canadian Pacific Railway. October 4, 2007. Archived from the original on February 19, 2008. Retrieved 2007-10-04.
  36. Canadian Pacific Railway (2008). "STB Application Status". Archived from the original on 2009-05-06. Retrieved 2008-08-13.
  37. "Canadian Pacific assumes operational control of DM&E Railroad" (Press release). Canadian Pacific. October 30, 2008. Archived from the original on November 3, 2008. Retrieved November 16, 2008.
  38. "CP gives up on Powder River Basin expansion plan". Trains Magazine. December 3, 2012. Archived from the original on December 7, 2012. Retrieved December 6, 2012.
  39. "CP seeking operator for west end of Dakota, Minnesota & Eastern". Trains Magazine. December 4, 2012. Retrieved December 6, 2012.
  40. "Scanner". Trains. Waukesha, WI: Kalmbach Publishing. February 1997. p. 23. ISSN 0041-0934.
  41. "DM&E Railroad announces management change". DME Rail. November 5, 2008. Archived from the original on October 31, 2009. Retrieved September 1, 2009.
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