Gov. Dennis Daugaard is butting heads with a major railroad over whether it kept its promises to South Dakotans.
Canadian Pacific Railways purchased a major rail line across South Dakota in 2008 when it bought Dakota, Minnesota & Eastern Railroad, or DM&E. At the time, state officials say Canadian Pacific promised to spend hundreds of millions of dollars improving DM&E tracks, much of which is in South Dakota.
But late last year, Canadian Pacific put the South Dakota portion of the old DM&E line up for sale. Daugaard worries that sale will harm South Dakota consumers, and doesn’t believe Canadian Pacific has made the promised improvements.
“They made representations that the people of South Dakota relied upon when they supported the Canadian Pacific’s acquisition of DM&E,” said Daugaard aide Matt Konenkamp. “We have an obligation to confirm whether or not they’ve met the representations the people relied on.”
In a petition filed this week with the federal Surface Transportation Board, Daugaard asks it to force Canadian Pacific to show whether or not it made those improvements. If it’s shown Canadian Pacific has not, Daugaard wants the Surface Transportation Board to prevent Canadian Pacific from selling the South Dakota track until it does so.
Ed Greenberg, a spokesman for Canadian Pacific, declined to comment Thursday afternoon.
The next step is uncertain. The Surface Transportation Board could summarily deny South Dakota’s request, or it could move forward, giving Canadian Pacific a chance to respond.
Konenkamp said Canadian Pacific promised to make at least $300 million in improvements to DM&E railroads in the first three years and nearly $500 million over the course of five or six years. They don’t believe those improvements have been made.
“The governor and other members of his administration… started talking to the railroad officials last December, asking a lot of these same questions, and so far have not really received an answer,” said Tony Venhuizen, a senior adviser to the governor. “You have to think if they had made all these improvements and could demonstrate that, they’d have been pretty quick to do that.”
Former Gov. Mike Rounds, who was in office at the time of the DM&E sale, said the prospect of getting improvements to the railroad was an important part of the deal for the state.
“We most certainly didn’t think they would be purchasing the line to hold it for resale,” said Rounds, who said he didn’t know about Daugaard’s decision to petition the Surface Transportation Board.
The former DM&E line in South Dakota runs east-west along the middle of the state, generally following U.S. Highway 14. The portion Canadian Pacific is looking to sell starts at Tracy, Minn., then runs west through Brookings, Huron, Pierre and Philip to Rapid City.
From there, spurs run northwest just into Wyoming, and south to Chadron, Neb.
In a news release last December announcing it was putting this track on the market, Canadian Pacific president and CEO E. Hunter Harrison didn’t say why the company wanted to sell the South Dakota railways.
“This portion of the CP network would be an attractive and highly viable opportunity for a low-cost operator,” Harrison said in the statement. “There is a strong long-term franchise here for an operator willing to maintain high quality service and explore growth opportunities with existing and future customers.”
But that announcement came just one day after Canadian Pacific declared it would not pursue an option to build an extension of the DM&E network into Wyoming’s Powder River Basin to ship that region’s coal east across South Dakota. That option, which would have cost Canadian Pacific more than $1 billion to pursue, was heavily discussed as a major factor for the purchase at the time.
Without coal trains, the DM&E line’s current traffic includes large amounts of agricultural goods, including grain and ethanol.
Mike Traxinger, the legislative director for the South Dakota Farmers Union, said his group is applauding Daugaard’s decision to seek action by the Surface Transportation Board.
Many farmers and ranchers rely on the former DM&E rail lines to get their goods to Chicago and other major cities, he said.
“The line connects all the way to Chicago, which is the heart of the grain industry in some ways,” Traxinger said. “It affects everyone near that line within a 100 mile radius.”