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Lately, Kevin Schieffer has received two or three inquires per week about how the Dakota, Minnesota & Eastern Railroad Corp. (DM&E) will finance its $1.4 billion Powder River Basin (PRB) project, which was first proposed in 1997. The DM&E’s president and chief executive officer didn’t always have a clear answer. Now, he does.

Today, the 1,100-mile regional announced it will apply for a federal loan through the Federal Railroad Administration’s Railroad Rehabilitation and Improvement Financing (RRIF) program to pay for the 900-mile track construction and rebuilding project. Sen. John Thune (R-S.D.) helped enact an amendment to the Safe, Accountable, Flexible and Efficient Transportation Equity Act of 2005 — A Legacy for Users (SAFETEA-LU) that changed the program’s requirements to include a project such as the PRB expansion — which would transform the DM&E into a Class I.

The amendment increases the RRIF program’s appropriation from $3 billion to $35 billion; allows new track construction projects to qualify for a loan along with rehabilitation projects; creates a 90-day loan application process; and mandates that loan payments can begin after a multi-year project is completed rather than after a loan closes.

In 2003, the DM&E obtained a $233 million RRIF loan to upgrade various lines. Through research, Schieffer discovered BNSF Railway Co. and Union Pacific Railroad obtained federal loans years ago through a previous government program to finance coal-hauling track construction projects. He determined the PRB project could qualify for a similar loan.

“This isn’t new or earth-shaking,” Schieffer said during a press conference today. “We saw an opportunity in the highway bill.

In addition to revamping the RRIF program, the amendment enables the DM&E to borrow more money to complete other trackwork. The railroad has applied for a $2.5 billion loan to build a 262.3-mile extension into the PRB and upgrade 600 miles of other potential coal-hauling lines; upgrade 250 track miles on 1,400-mile sister road the Iowa, Chicago & Eastern Railroad Corp. (IC&E) to attract ethanol and other shippers, and improve service; rehabilitate 150 track miles on the DM&E’s western end between Wall, S.D., and Colony, Wyo., to improve service; and upgrade 30 track miles on IC&E’s line from Marquette, Iowa, northward, to attract new business.

“Because of this RRIF opportunity and changes in our company since 1997, such as that we now operate two railroads, we are pursuing this 1,300-mile project instead of only the 900-mile PRB project,” Schieffer said. “This isn’t a grant, it’s a loan, and it still has to be approved by the federal government and our shareholders.”

The DM&E expects the Surface Transportation Board to complete its environmental review of the PRB project in January, Schieffer said. If the board signs off on the project's environmental impacts, the FRA could issue a decision on the RRIF application in second-quarter 2006. Construction on the three-year project could begin in late 2006 or early 2007, Schieffer said.

“This loan gives us certainty in the process, but it’s still a decision the utility industry has to make on whether this project gets built or not,” he said. “Competitors will be off to races to pick off potential customers. If the utility industry allows that to happen, the project won’t be built.”

— Jeff Stagl