DM&E Denied $2.5 Billion Taxpayer Backed Loan

[ericboone]

I heard on the radio that the FRA denied the loan to the DM&E.  Thank goodness the taxpayer isn't going to be left holding the bag for a railroad that goes bankrupt when they can't steal the business from the UP or BNSF.  Of course it may get appealed.

[ericboone]

Here's an article from Trains.com

http://www.trains.com/trn/default.aspx?c=a&id=1557

[mikevandenberg]

I believe I heard on NPR that it cannot be appealed. 

[garyla]

The company claimed to have the private financiers available if the loan didn't go through, so maybe this is just as well.  Better to do it with private money anyway!

This probably will have little effect on the politicking which is going on with regard to Rochester, the Mayo Clinic, etc.  There's more at work here than concerns about public financing, traffic, noise, and dust.

[CShaveRR]

I wonder how many of those private sources will back out now.  I would think that action such as this would cause a lot of confidence to be lost.

[Murphy Siding]

     After watching the 10:00 local news tonight, I would come to the conclusion that, for better or worse,  DM&E's PRB dream is over.

[Doublestack]

I heard on the radio that the FRA denied the loan to the DM&E.  Thank goodness the taxpayer isn't going to be left holding the bag for a railroad that goes bankrupt when they can't steal the business from the UP or BNSF.  Of course it may get appealed.

.... so in the mean time, the poor tax payer is going to pay through the nose by virtue of ever increasing utility rates, driven by massive rate increases from UP and BNSF for transportation of coal from the Powder River Basin, because there isn't currently enough capacity to create actual competition and therefore, they can take rate hikes in excess of 80% and you get to pay that, in the form of your electric bill.  I've been at hearings involving utilities, RR's and Gov't officials and the utilities are citing increases in excess of 80%.   Why?  Because the RR's (UP and BNSF) can, because they're the only game out there.

Why do people think that there's a free ride out there?  Considering the billions of coal revenue UP and BNSF generate annually (25-35% of their annual $26B collective revenue), that's about $6B every year,  wouldn't $2B once to DME to create some competition be a good thing?

 

[Dakguy201]

Mayo (quietly) in the past year has put two out of work politicans on its Board, but I believe their real function was to lobby against this deal.  They are former Senator Tom Dashle and former Representative Bill Janklow. 

Both previously represented South Dakota, and I think they have done the state a major disservice, but I guess that is what you can expect from politicans. 

[eolafan]

Stupidity, sheer stupidity!

[wallyworld]

I heard on the radio that the FRA denied the loan to the DM&E.  Thank goodness the taxpayer isn't going to be left holding the bag for a railroad that goes bankrupt when they can't steal the business from the UP or BNSF.  Of course it may get appealed.

.... so in the mean time, the poor tax payer is going to pay through the nose by virtue of ever increasing utility rates, driven by massive rate increases from UP and BNSF for transportation of coal from the Powder River Basin, because there isn't currently enough capacity to create actual competition and therefore, they can take rate hikes in excess of 80% and you get to pay that, in the form of your electric bill.  I've been at hearings involving utilities, RR's and Gov't officials and the utilities are citing increases in excess of 80%.   Why?  Because the RR's (UP and BNSF) can, because they're the only game out there.

Why do people think that there's a free ride out there?  Considering the billions of coal revenue UP and BNSF generate annually (25-35% of their annual $26B collective revenue), that's about $6B every year,  wouldn't $2B once to DME to create some competition be a good thing?

 

I think the result clearly demonstrates that the public good is once again determined by proxy in the form of special minority interests who cannot see beyond their own back yard. I have the sense that those that are surprised at the ultimate disposition of this matter are in the minority. The age in which enterprise and the expansion of infrastructure was held hand in glove by the larger community has long since left the station. Small well funded groups who view themselves as the arbiters of the majority's disposition have won a major victory. I can't help but reflect back to that day at Promontory a long time ago whose completion was rung by telegraph around the country. Now that is a quaint footnote ridiculed in anti-pollution commercials. Here we are, and there we were.   

[Anonymous]

I heard on the radio that the FRA denied the loan to the DM&E.  Thank goodness the taxpayer isn't going to be left holding the bag for a railroad that goes bankrupt when they can't steal the business from the UP or BNSF.  Of course it may get appealed.

.... so in the mean time, the poor tax payer is going to pay through the nose by virtue of ever increasing utility rates, driven by massive rate increases from UP and BNSF for transportation of coal from the Powder River Basin, because there isn't currently enough capacity to create actual competition and therefore, they can take rate hikes in excess of 80% and you get to pay that, in the form of your electric bill.  I've been at hearings involving utilities, RR's and Gov't officials and the utilities are citing increases in excess of 80%.   Why?  Because the RR's (UP and BNSF) can, because they're the only game out there.

Why do people think that there's a free ride out there?  Considering the billions of coal revenue UP and BNSF generate annually (25-35% of their annual $26B collective revenue), that's about $6B every year,  wouldn't $2B once to DME to create some competition be a good thing?

 

I think this controversy had a lot more to do with coal than it did with coal trains or federal loans.  I cannot say whether competition would have held electric rates down, but the biggest force to push those rates up will be government mandates to go green and switch to wind and solar electric power.  I wonder if Mayo would have objected to trainloads of windmills.

[Murphy Siding]

.... so in the mean time, the poor tax payer is going to pay through the nose by virtue of ever increasing utility rates, driven by massive rate increases from UP and BNSF for transportation of coal from the Powder River Basin, because there isn't currently enough capacity to create actual competition and therefore, they can take rate hikes in excess of 80% and you get to pay that, in the form of your electric bill.  I've been at hearings involving utilities, RR's and Gov't officials and the utilities are citing increases in excess of 80%.   Why?  Because the RR's (UP and BNSF) can, because they're the only game out there.

    I have a hard time believing that a DM&E line to the PRB would lower anybody's electric bill.  Any money taken from the coffers of UP or BNSF would end up in the hands of DM&E, (or,more likely)DM&E's bankers, or the utility companies.  Yes, it might cut into UP and BNSF profits, but no one has shown for sure that the, electic consumer would save a dime.  If that had been proven, there might have been a lot more positive discussion.

[Anonymous]

    Any money taken from the coffers of UP or BNSF would end up in the hands of DM&E, (or,more likely)DM&E's bankers, or the utility companies. 

How exactly was money being "taken from the coffers" of UP and BNSF?  I didn't realize that UP and BNSF were being taxed to pay for the DM&E loan.

 

Or are their monopolistic abuses and cross-subsidization of the Red Chinese economy a God-given Constitutional right?

[TH&B]

I heard on the radio that the FRA denied the loan to the DM&E.  Thank goodness the taxpayer isn't going to be left holding the bag for a railroad that goes bankrupt when they can't steal the business from the UP or BNSF.  Of course it may get appealed.

 

Some how the taxpayer will still be holding the bag, the taxpayer always does.

[Murphy Siding]

    Any money taken from the coffers of UP or BNSF would end up in the hands of DM&E, (or,more likely)DM&E's bankers, or the utility companies. 

How exactly was money being "taken from the coffers" of UP and BNSF?  I didn't realize that UP and BNSF were being taxed to pay for the DM&E loan.

  Perhaps coffers is the incorrect word in this case.  How about "bank account" instead?  DM&E was planning on making some of the profit that UP and BNSF are making.  To see it any different way is kind of a stretch.  No one along the way said that DM&E would pass that money on to electrical consumers.

[Murphy Siding]

Or are their monopolistic abuses and cross-subsidization of the Red Chinese economy a God-given Constitutional right?

    Slow down there Dave.  You're going to work yourself into a tizzy!  I didn't say I agreed with how this worked out.  All I'm saying is, I'm not too surprised how this worked out.  It's far to easy to dismiss people for being stupid, because they don't see things as you do .  It's far harder to convince people to see things your way.  If DM&E had convinced enough people,this would have been a slam-dunk.

[Anonymous]

I don't think the idea was that DM&E would directly subsidize the electric consumer.  But I have heard the premise that DM&E could deliver coal to certain areas at a lower price than what is currently available, so the cheaper coal would reduce the cost of electric power in those areas.

[Chris30]

I don't know if this kills the PRB dream. In our legal system there always seems to be an appeal. I appeal the appeal of your appeal... or something. Perhaps this motivates the DME. If they do have the private money, then build away and show the FRA that the loan could have been repayed. If there's any money left over... build a big loop around the Mayo Clinic.

CC

[youngengineer]

I still fail to understand why if this is such an awesome undertaking why cant private funds be found. Maybe because the cost of bringing coal out of PRB is far greater than 2 billion and the savings to the electric companies are not there. I believe the BN spent close to 2 billion(I could be wrong but I 'm pretty sure it was a lot of money, enough to make the railroad worry, that it might go bankrupt if it didn't work.) to open the PRB in the 80's. I find it hard to believe that the DM&E could do it for that amount today.

Plus if the railroads are over charging customers and the 2 are doing this together I believe there are laws against this. Once again the private sector is being charged with a serious crime of colusion without proof. The reason for rate increases is due to the fact that they have been undercharging for years. The railroads have not reaped great sums of money off the PRB but rather have made a modest profit.

 

[Murphy Siding]

I still fail to understand why if this is such an awesome undertaking why cant private funds be found.

  A good guess, is that Government funds would be at a lower interest rate than private funds. (Probably due to the possibility of higher risk?)

[garyla]

From a political standpoint, perhaps that'll be what's necessary to get this built.  But my gut-level reaction is to force it down the clinic's collective throat.  (Sorry, everyone.)

I'm still at a loss to understand why that formerly respected non-profit had to sully itself by getting so deeply involved in this.  Someone there surely has another axe to grind.

[zardoz]

I don't know if this kills the PRB dream. In our legal system there always seems to be an appeal. I appeal the appeal of your appeal... or something. Perhaps this motivates the DME. If they do have the private money, then build away and show the FRA that the loan could have been repayed. If there's any money left over... build a big loop around the Mayo Clinic.

CC

A 10-mph, 9-degree curved loop, so the flanges can squeal all day long; slowly, slowly, the high-pitched noise will penetrate the brains of the NIMBY's and cause a cerebral meltdown.

[petitnj]

Yes, folks the issue is that with the US government borrowing $2B per day to keep itself afloat, it is very difficult to compete and borrow money for expansion of large industries. DM&E could sell stock, but the stock market is so near sighted it wants its profits in months and not the years necessary to pay off a loan. Therefore, more and more industries have to turn to government guaranteed loans (at low interest rates because of the low risk of default).

DM&E will be able to raise the money on the capital market but will be forced to give up control of the railroad to investors. This has its up side and down side. The up side is that the investors want to see it succeed the down side is that investors become impatient and may want return on their investment quickly.

In any case this is a good investment. Why? Railroads own lots of property. BNSF assets listed in their 2005 annual report are $30B. The stockholders equity is $10B. So if you gathered change in your couch and bought BNSF for $10B, shut it down and sold off what it owns at 50 cents on the dollar you would make a cool $15B with a net of $5B. This makes absolutely no sense, but then you are trying to apply logic to the stock market. It runs on market psychology!

Obviously DM&E is not worth $30B but I am sure that their property is easily worth $2.3B and would easily collateralize the FRA loan. I know you don't belive that but the price of land has skyrocketed to the point that all the smart players are in farm and development land. The taxpayers would never lose on this loan guarantee. The denial of the loan is a political move to satisfy a few. I have asked the folks in Rochester, MN to turn off half their lights so they don't need the coal for power. Surprisingly, they don't want to do that either.

The saga continues.

[Murphy Siding]

Obviously DM&E is not worth $30B but I am sure that their property is easily worth $2.3B and would easily collateralize the FRA loan. I know you don't belive that but the price of land has

  I'd have to question that statement.  Non-tillable land, in rural ag states, divided into 100 foot widths by 100's of miles long doesn't fetch the highest prices on today's market.

[Anonymous]

Or are their monopolistic abuses and cross-subsidization of the Red Chinese economy a God-given Constitutional right?

    Slow down there Dave.  You're going to work yourself into a tizzy!  I didn't say I agreed with how this worked out.  All I'm saying is, I'm not too surprised how this worked out.  It's far to easy to dismiss people for being stupid, because they don't see things as you do .  It's far harder to convince people to see things your way.  If DM&E had convinced enough people,this would have been a slam-dunk.

My apologies to the forum.  I've now had one full day to cool off about this.  Still ticked off, mind you, but now I'm at the stage where a healty dose of cynicism helps to lower the blood pressure.  Serentity now, serenity now........

As for what DM&E could have done differently, I don't think they could.  Mayo and BNSF seemed fanatically committed to killing this project no matter how many concessions DM&E made, and you know what they say about trying to reason with fanatics.......

[Anonymous]

I don't know if this kills the PRB dream. In our legal system there always seems to be an appeal. I appeal the appeal of your appeal... or something. Perhaps this motivates the DME. If they do have the private money, then build away and show the FRA that the loan could have been repayed. If there's any money left over... build a big loop around the Mayo Clinic.

A 10-mph, 9-degree curved loop, so the flanges can squeal all day long;

.....preferably using jointed rail and a lot of railcars with flat spots on their wheels, being pulled by old smokey Alco's with stuck out of tune horns........ being pushed back and forth, back and forth.......slack in, slack out, slack in, slack out........

[Doublestack]

In addition to the Mayo objection, the one that REALLY killed me was BNSF objecting to the "possibility" that the DM&E may disrupt BNSF operations at Savannah, IL by monopolizing the BNSF / ICE diamond.   How could BNSF posed this issue w/ a straight face.

1)  If DM&E ran 20 coal trains a day (they'd likely never have reached that high of a count) + 20 empties a day and if the speed limit at Savannah on the DM&E was 20 MPH, they'd tie up the diamond a total of 2 hrs per day, assuming that each train was a mile long.  Add on signal delays and maybe you get to 4 hrs.  BNSF currently runs about 40 trains per day, so that would account for about the same amount of time.  That still leaves 16 hrs of quiet time per day at the jct. 

2)  If the minority RR at a junction (lesser volume) should be held subordinate to the larger volume RR at a diamond - and should perhaps be barred from expanding operations based on the premise that the lesser volume RR would impinge on the traffic of the larger volume RR, how does BNSF reconcile the fact they "THEY - the mighty BNSF" is the lesser volume RR at a much more substantial diamond, just an hour away, at Rochelle.  (BNSF 40 trains per day, UP 60-80 trains per day) 

I guess BNSF's EVP of Law - ex STB Chair -  political puppet Roger Nober has to have something to do these days.

- - Stack

 

[solzrules]

I was extremely disapointed in the FRA's decision.  However, I don't think it means the end of the DME's PRB attempt.  I am sure that Scheiffer was smart enough to have a plan 'B' in place in case the loan process didn't come through.  I tend to agree with a previous poster's point about the railroad losing itself to investors in order to get this done.  I am sure that if Scheiffer wants to do this, he will find a way to fund it privately.  The problem is that the railroad will become lost to investors, although this may give impetus to making the expansion successful.  In any case, the stakes have definitely risen. 

As for the Mayo clinic, I would recommend running a 100 car unit train of tankers through Rochester with ever car labeled 'cyanide' on the side.  They could fill the tankers with water (just for fun) and then have it derail right in front of the clinic.  But instead of stopping the railroad to clean the mess up, just keep sending trains through and let them pile up in front of Mayo. 

Ha. 

There, I feel better. 

[daveklepper]

I was dissapointed in the decision but have no problem with the financial market deciding on the viability of the project.   I think it will go ahead.

There are problems with rail vibration and sensitive diagnostic equipment, but they have been addressed successfully elsewhere, either at the hospital or within the track construction or both together.

[Jr64]

It's truly too bad that this load was denied.  Maybe the concerns fo repayment are legitimate, I don't know.  What I do know is that the government has taken a bath for amounts much greater than 2 billion dollars for lesser causes than this.  I felt it would be money well spent.  Everything does happen for a reason, however.
We are to far removed from when the railroads settled and built this part of the country for people to care about the railroads.  Thanks to Rochester and Mayo for tying up our courts and milking huge dollars out of DM&E for lawyers fees.  As for their arguement of DM&E's safety record, well, is it any wonder?  Look at the rails they are having to run on.  This project would vault their safety record upward, most certainly.  And as for trains going through town.....I live in a community where trains idle through at 5 to 10 mph.  I would rather wait one and a half minutes for each train a mile long running at 45 mph than to sit for 10 minutes or more for the same train to clear the crossing.

It'll be interesting to see what happens now, but quite frankly, I wouldn't be surprised if DM&E dropped the plan and settle for doing what they've been doing all along.  Providing a service in an area that no one wanted to handle.