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US Ag secretary backs SD in DM&E Railroad issue

PIERRE (AP) — The U.S. Secretary of Agriculture is backing South Dakota in the state's effort to make sure the owner of the old Dakota, Minnesota & Eastern Railroad has fulfilled its promises to upgrade the line before selling it.

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Secretary Thomas Vilsack sent a letter to the Surface Transportation Board urging the panel to support the state's petition to investigate Canadian Pacific Railway Ltd. and the former DM&E, which it acquired in 2007.

Canadian Pacific bought 2,500 miles of track and equipment from South Dakota-based DM&E and its subsidiaries for $1.5 billion.

Now CP and the state of South Dakota are at odds over whether the railroad has met its obligation to invest $300 million in upgrades as part of the purchase.

A CP spokesman said last month the railroad showed the board it has invested substantially more than the $300 million.

Gov. Dennis Daugaard's office disagreed, saying the figures are misleading.

In December, Canadian Pacific announced that it was looking into the possibility of selling 660 miles of track in South Dakota, Minnesota, Wyoming and Nebraska. The announcement came a day after the company said it was mothballing plans to extend its DM&E network into the Powder River Basin to ship Wyoming coal to power plants in other states because of weakening demand for coal.

The railroad did not directly link the two decisions.

Daugaard filed the petition with the board in August. The governor met with Vilsack Sept. 12 in Washington to discuss the only east-to-west rail in South Dakota and its impact on agriculture.

Access to competitive shipping prices for commodities, not abandonment of the line, is the major issue with ensuring Canadian Pacific has upgraded the rail line, said Matt Konenkamp, a policy adviser for the governor's office.

"The governor's concern is that shippers in South Dakota, farmers in South Dakota supported the CP's acquisition of the DM&E based on the promises that were made. And so the petition seeks to determine whether or not those promises have been made," he said.

Vilsack agreed that the issue is worth the STB's attention.

"The loss of this line, or major portions of it, could eliminate rail service to a major portion of the state. Even where service would remain, agricultural shippers would only have access to a single railroad, which could increase rail rates for agricultural shippers and receivers," Vilsack wrote. "A full accounting of the promised investment, as requested by South Dakota, is a reasonable step forward."

Before DM&E was sold to CP, the line provided shipping service to critical transportation hubs including Minneapolis, Chicago and Kansas City, Daugaard said earlier.