Canadian Pacific mothballs plans for coal country expansion

By AMBER HUNT, Associated Press

SIOUX FALLS, S.D. (AP) - Weakening demand for coal has prompted Canadian Pacific Railway Co. to mothball plans to extend its Dakota, Minnesota & Eastern Railroad network into the Powder River Basin to ship Wyoming coal to power plants in other states, the company announced Monday.

The "indefinite deferral" is an apparent death knell for long-standing plans for a third railway to compete in the coal-rich basin, which CP officials had once called an exciting prospect for an "efficient and competitive additional link to Midwestern and eastern utilities."

"CP took a careful look into the long-term prospects of the (Powder River Basin) for our railroad and, when considering the outlook of domestic thermal coal, we made what we feel is the prudent business decision" by axing the plans, CP spokesman Ed Greenberg told The Associated Press.

Canadian Pacific currently runs two to four trains every 24 hours through Rochester, Minn. The trains carry mixed freight, mostly grain or steel, but not coal. Some trains have started to haul silica sand through the region.

Rochester officials and Mayo Clinic leaders have long expressed safety concerns about the proposed rail project, which could have brought coal trains on rail lines that run near the Mayo headquarters.

CP bought the South Dakota-based Dakota, Minnesota & Eastern Railroad and its subsidiaries in 2007 for $1.5 billion. Included in the sale were DM&E's equipment, 2,500 miles of track and the option to expand into the basin.

DM&E had plans to add 260 miles of track around the southern end of the Black Hills to the Wyoming coal fields. The goal was to haul low-sulfur coal east to power plants, a multibillion-dollar project. The line would have competed with Union Pacific and BNSF Railway, which in 2006 had carried about 450 million tons of coal from the basin.

But coal prospects have changed over the years, Greenberg said. Railroads have been dealing with weaker coal demand because of low natural gas prices and last year's mild winter. There also is speculation that any new regulations to limit greenhouse gases would make coal even less attractive to utilities.

"There are factors that went into CP reaching this decision, beginning with the long-term outlook for coal, as well as lower natural gas prices from an over-supply, resulting in decreased coal production," Greenberg said.

Wyoming is the nation's leading coal-producing state, though the state is projecting essentially flat revenues in coming years. Wyoming's in-house state fiscal analysts in October projected that coal production in the state is on pace to decline 8.7 percent, or about 40 million tons, in 2012.

The DM&E project had been controversial from its inception. The Sierra Club and other groups have pushed to try to block federal coal leases in the Powder River Basin on the grounds that burning coal mined there would contribute to global warming.

The company's announcement is welcome in Rochester and changes the dynamic of the debate, said Olmsted County Commissioner Ken Brown, who serves on the Rochester Coalition, a group long-opposed to the increased rail traffic.

"It's great. If it ever comes back, we're still there to make sure Rochester is protected and safe," Brown said. "But it's good news for the area not to have to spend a great deal of resources and time and effort since they are no longer going to go into the Powder River Basin.

"The concern always had been the number of trains that would be generated in the event DM&E or Canadian Pacific started to actually haul large tonnage of coal, up to 30-plus trains a day, unit trains going through the city," Brown said. "And clearly is on hold and it's anybody's guess when that might happen if it ever does."

MPR reporter Liz Baier contributed to this story.

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