As harbingers go this is pretty graphic - 3,000 cars of Powder
River Basin coal hauled by the Dakota Minnesota & Eastern
Railroad from Rapid City to Chicago.
Beginning this week, the DM&E will begin carrying Wyoming coal
for KFx, a Denver company that is commercially testing its
process to make coal burn hotter and cleaner. KFx will truck
processed coal from Wyoming to Rapid City, where it will be
loaded on DM&E trains to Chicago. From there the coal will be
sent to utilities, hospitals and universities, mostly in Ohio,
Michigan and Illinois, according to KFx Chairman Ted Venners.
"If these test burns go well, particularly when our project is
built, we could be moving a lot more coal," DM&E CEO Kevin
Schieffer said.
It's what the railroad has pinned its future on for nearly a
decade.
And it's a future that scares many along the line who would be
affected by it.
For the past eight years, the DM&E has been
seeking regulatory approval and money to rebuild its line across
Minnesota and South Dakota and extend it more than 200 miles
west to Wyoming's coalfields. The project has been controversial
throughout its history, both in parts of Wyoming and South
Dakota that would be crossed by new rail and in communities such
as Pierre, Brookings and Rochester, Minn., which all sought
bypasses.
In 2003, the DM&E secured approval from the federal Surface
Transportation Board to do the project and survived a legal
challenge to that approval. In the 2005 federal transportation
bill, Sen. John Thune got through changes that enabled the DM&E
to qualify for a $2.3 billion loan from the Federal Railroad
Administration to build the Powder River Basin project.
The administration will take public comment on the loan proposal
through early October and then is expected to approve or deny
the loan within 90 days. DM&E's plan hinges on the loan.
Low capacity
Schieffer says the new business offers a glimpse of the future
and helps illustrate the need for rail expansion. Though he says
no more ammunition is needed, the deal with KFx gives the Sioux
Falls-based DM&E another reason to call for the federal loan.
"When you are transloading coal by truck to get to market, that
tells you something about capacity problems" the existing rail
shippers BNSF and Union Pacific have in moving coal out of the
Powder River Basin, Schieffer said.
Venners, too, says the BNSF, which handled KFx's first shipment,
a unit train of coal sent to Ohio in August, has limited
capacity to handle more coal. BNSF also requires coal be shipped
in 140-car unit trains, and many of the industries KFx is
targeting do not have facilities to off-load and store that much
coal.
The DM&E can haul coal in smaller lots and to places not served
by the BNSF, Venners says.
With its process to decrease toxic emissions in Wyoming coal and
make it burn hotter, KFx is on the leading edge of environmental
regulations that will shape the coal mining and coal-fired
utility industries, Venner says. The KFx process is the only one
that allows Wyoming coal to meet federal Clean Air Act standards
for mercury and other emissions that will go into effect in
2007, he says.
"We are the only solution to these industries. They either have
to buy clean coal or switch to natural gas," Venners said.
Within five years, the company hopes to be selling 50 million
tons of processed coal. So far, it has one plant in Gillette,
Wyo., that can process 750,000 tons annually.
Not all the coal produced by KFx and shipped by the DM&E might
simply pass through South Dakota to points east, according to
both Schieffer and Venners. Some of it could lend momentum to an
already booming renewable fuels industry.
Currently, ethanol plants in South Dakota use natural gas for a
heat source to distill alcohol from corn.
"We get calls regularly from the ethanol industry about
switching," Venners said. "Buying clean coal is much more
competitive. It's one-fourth the cost of natural gas."
Coal-fired ethanol?
Schieffer is unequivocal in predicting the DM&E will some day
carry Wyoming coal to ethanol plants. "There are huge, huge,
huge prospects of that occurring, to the point where I would say
it is absolutely inevitable," he said.
Brian Jennings, executive director of the American Coalition for
Ethanol, was more temperate in assessing the scenario.
Only four or five of more than 100 ethanol plants in the nation
currently use coal. The rest use natural gas. But the volatility
of gas prices in recent years makes coal an attractive
alternative, he says.
"Natural gas will continue to dominate. But as new ethanol
plants come on line, certainly developers will look at options.
Coal is one of the options they will consider," Jennings said.
Some of the KFx coal will go through Rochester, the most
steadfast opponent of the DM&E's expansion plan.
Lee Aase, spokesman for the Mayo Clinic, the leading institution
in the Rochester Coalition that is the focus of DM&E opposition,
says the DM&E deal with KFx does not raise fears Rochester will
find itself with a coal-hauling railroad shoved incrementally
down its throat.
"From our perspective, the contract really doesn't change
anything. It represents a small fraction of what DM&E would need
to repay a $2.3 billion loan from American taxpayers.
"It's a very small fraction of what they need in terms of coal
contracts. It doesn't really do anything to illustrate the
viability of their project," Aase says.
Venners had ties to South Dakota before the KFx deal with the
DM&E. Venners is the son of a Plankinton veterinarian. He
formerly worked in the administration of South Dakota Gov. Frank
Farrar before going into private business, where he started a
coal mine in Wyoming in 1978 and KFx in 1984.
"I saw a need to make coal better," he said. "We have to apply
better technology in using our natural resources."
KFx first began processing coal in commercial amounts late in
2005.
Venners hooked up with Schieffer when both of them were
incubating their ambitious dreams.
"I first made contact with them five years ago, plus or minus,"
Schieffer said of KFx. "It was a very theoretical stage then,
but we stayed in touch.
"Over the years we would keep in touch with the idea that, 'If
one of us ever hits reality, we'll let you know.' It appears we
are both closing in on reality at the same pace."
Venners sees the potential for doing more business with the DM&E
even before the Powder River Basin project, which Schieffer
hopes to begin next spring and expects will take several years
to build. KFx can continue to truck coal to Rapid City as long
as there is available trucking at affordable rates, Venners
said. "As long as the market demands it, we will keep doing it."
He says KFx also has plans for more production plants within a
couple of years.
"It coincides with the time period of the DM&E expansion," said
Venners. "It's all timed quite nicely."
Reach Peter Harriman at 575-3615.
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