State officials fear that Canadian Pacific Railway Company has not held up its commitment to spend $472 million to upgrade the former Dakota, Minnesota and Eastern Rail line network. 

State officials are charging that the Canadian Pacific Railway Company has failed to live up to its promise to spend $472 million to improve a rail system that includes the only direct east-west line that serves western South Dakota.

On Thursday, Gov. Dennis Daugaard met in the nation's capital with the secretary of transportation, the secretary of agriculture and the Federal Railroad Administration to ask the agencies to support his efforts to have the company disclose its investments in the former Dakota, Minnesota and Eastern Rail Corporation, which the company purchased in 2008.

The state also fears the company is planning to sell the section of the line that runs through the state, which officials claim would make it more difficult to ship products to Chicago and other markets in the eastern U.S.

Matt Konenkamp, a policy adviser for the governor's office, said the company promised it would spend $300 million in the first three years after its acquisition of the DM&E network and then another $172 million for previously budgeted capital improvements for the entire network, which runs through Wyoming, Nebraska, Missouri, Illinois, Minnesota, Iowa, Wisconsin and South Dakota.

In particular, he said, the company appears to have spent little on the section of line that includes Rapid City.

"As near as we can tell, the line that most affects West River has had no substantive upgrades other than maintenance-type improvements," Konenkamp said.

South Dakota officials have sent a petition to the federal Surface Transportation Board that calls for proof that the money has been spent on promised upgrades. Rapid City and Pennington County have both prepared resolutions to support the state's request.

"I would say that the secretaries were very receptive to listening to our concerns, and we hope to understand soon whether they will take interest in the petition or not," Konenkamp said after the governor's team met with federal officials.

Canadian Pacific, however, disputes the state's claims and said that it has met its financial obligations for the line.

"In fact from 2008 to July of 2013, Canadian Pacific has invested more than $400 million to improve the safety and efficiency of the former DM&E network," company spokesman Ed Greenberg said. "Clearly for Canadian Pacific, we feel we have met our commitment to the Surface Transportation Board."

Konenkamp said, however, the company is engaging in creative accounting when it says it has spent the $405 million noted in the company's response to the state's petition.

"To get to that number, they're double counting," he said. "They're counting money that DM&E already spent. It is in line with good faith and fair dealing that they truly let us know in detail the money that they invested so that we can see with or own eyes whether or not they have meet their representations."

Canadian Pacific also said at the time of the purchase that it would provide "direct, single-service" resources to shippers and the communities that rely on the rail system, according to the state's petition.

But South Dakota officials fear that Canadian Pacific will sell the portion of the system that serves South Dakota, "leaving shippers with only marginalized service and fewer competitive options than those that existed when DM&E first began operations in 1986," according to the petition.

If sold, Konenkamp said South Dakota would only have direct access to Minnesota and would have to deal with Canadian Pacific to get access to Chicago or Kansas City, both of which South Dakota now has direct access to.

Greenberg said no decisions have been made about selling the 660-mile section of rail line that crosses South Dakota.

"It should be made clear if a decision was made to sell the 660-mile section, it would only be with a party that can provide quality service to shippers and grow the business," he said.

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Contact John Lee McLaughlin at 394-8421 or john.mclaughlin@rapidcityjournal.com

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