IDOT - merger of RR's - STBIowa De
800 Lincoln Way, Ames, IA50010
April 5, 2002
515-239-1111
FAX: 515-239-1639
MEMORANDUM TO SELECTED CITY AND COUNTY OFFICIALS
FROM: Mark F. Wandro, Director
SUBJECT: Potential Railroad Merger
I am writing to alert you to a potential railroad merger application to the Surface
Transportation Board (STB).
On February 21, 2002, the Dakota Minnesota and Eastern Railroad (DME) announced its
intended acquisition of I & M Rail Link (IMRL), a railroad that passes through your area.
The proposed transaction, outlined by press announcements, indicates the Iowa Chicago and
Eastern Railroad Corporation (IC&E), a subsidiary of American Rail Holdings, Inc., which
is a wholly owned subsidiary of DME, will acquire the assets of the IMRL.
While no application has been filed at this time with the STB, we are concerned the
applicant may request the transaction be considered "exempt" as defined in 49 CFR 1180.2.
If the application is declared exempt, the process by which the state and communities can
offer comments is significantly reduced.
I am enclosing a copy of my letter to the STB requesting that the proposed merger not be
declared "exempt" and all interested parties be provided ample time to comment and
participate in the proceedings. It should be noted that the Iowa Department of
Transportation (DOT) remains neutral on the transaction at this time. Our concern is that
the appropriate regulatory process be used for the following reasons.
We have several unanswered question related to the proposed transaction, and an "exempt"
process would not provide ample opportunity for Iowa shippers and communities to respond i
or comment. As you may know, both railroads currently operate in Iowa, with IMSkL
having the most significant Iowa operations. Nearly 60 percent of the IMRL operations and
operating revenues are in Iowa, and the routes traverse 57 communities in 22 counties,
including yours. We anticipate the acquisition of the IMRL by the DME would have a
significant effect on rail service in Iowa, on the shippers they serve, and on the communities
the railroads traverse.
Memo to Selected City and County Officials
April 5, 2002
Page 2
In conclusion, the DOT has requested the STB view the proposed transaction as significant
and engage a full regulatory process when an application is submitted. Your county/
community may also write the STB to express your concerns. You may also wish to contact
the DME Railroad or IMRL to gather information on the proposed merger. Their addresses
are noted below.
If you have any questions, you may contact John Hey of the DOT's Modal Division, 800
Lincoln Way, Ames, IA 50010, telephone 515-239-1653.
MFW:et
Enclosure
cc: John Hey, Modal Division
Addresses
DM:E Railroad Corporation
337 22nd Avenue South
P.O. Box 178
Brookings, SD 57006
I & M Rail Link
1910 East Kimberly Road
Davenport, IA 52807-2033
Iowa Department of Transportation
800 Lincoln Way, Ames, IA 50010 515-239-1111
FAX: 515-239-1639
April 4, 2002
Linda Morgan and Wayne Burkes
Surface Transportation Board
1201 Constitution Avenue N.W.
Washington, D.C. 20423
Dear Ms. Morgan and Mr. Burkes:
On February 21, 2002, the Dakota Minnesota and Eastern Railroad (DME) announced its
intended acquisition ofI & M Rail Link (IMRL). While we recognize that no application
has yet been filed with the Surface Transportation Board (STB), we are concerned that the
applicant may request the transaction be considered "exempt" as defined in 49 CFR 1180.2.
We wish to go on record that the proposed transaction, if or when an application is filed,
should be given due consideration as a "minor" transaction, if not a "significant" transaction,
as defined in 49 CFR 1180.2. The transaction will certainly be of regional and national
transportation importance and have significant impacts on communities and shippers.
With a significant or minor transaction designation, STB could provide all interested parties
ample time to comment and participate in the proceedings. Ample time would not be
available in an exempt proceeding. It should be noted that Iowa remains neutral on the
transaction at this time. We are neither for nor against this transaction since there is little
information currently available. Our concern is that the appropriate regulatory process be
used.
The proposed transaction, outlined by press announcements, indicates that the Iowa Chicago
and Eastern Railroad Corporation (IC&E), a subsidiary of American Rail Holdings, Inc.,
which is a wholly owned subsidiary of the DME, will acquire the assets of the IMRL. While
this transaction is a bk convoluted and may on the surface look like a non-carrier acquisition
of railroad assets, it is, in fact, the acquiskion of the IMRL by the DME, as both will be
under the same management control. We feel that an application filed with STB relative to
the proposed transaction should not be considered exempt for any of the seven categories
outlined in CFR 49 1180.2(d). We aiso do not feel this transaction is merely a benign non-
railroad company acquiring rail assets wkh no market impacts, operational changes or
environmental effects.
COPY
Surface Transportation Board
April 4, 2002
Page 2
Iowa's concerns on the regulatory process stem from the fact that there are a number of
unanswered questions related to the proposed transaction, and an exempt process would not
provide ample opportunity for the Iowa Department of Transportation, Iowa shippers,
commurdties and others to respond or comment. As you may know, both railroads currently
operate in Iowa, with the most significant Iowa operations being those of the IMRL Nearly
60 percent of the IMRL operations and operating revenues are in Iowa. It is expected the
acquisition of the IMRL by the DME would have a significant effect on rail service in Iowa,
on shippers they serve, and on communkies in Iowa they traverse.
Following are some of our concerns and questions about the proposed transaction we hope
to have answered or addressed in a full STB process.
Financial viability -- The proposed purchase by a small short line railroad with marginal
operating profits ora larger regional carder with no operating profits does not appear to
make for a viable combination. While the DME may have a successful future with or
without the development of Powder River coal traffic, combining wkh the IMRL may not
generate significantly increased revenues or reduce costs sufficiently to offset current
operating losses for the IMRL. This is important since, without having a reasonable
expectation of success for this merger, there is the potential for more consolidations or re-
organizations in the future (i.e. downstream impacts), which could have more and broader
impacts on service and competitiveness.
Iowa believes there are a number of questions and issues concerning the financial viability
and future stability of the proposed merger. These issues need to be answered through the
STB process. Having an exempt process for this transaction will not provide sufficiem
review of these questions.
Environmental/community impacts -- The IMRL, particularly as it traverses northeast
Iowa and the Mississippi River corridor, could pose some environmental and community
impacts when or if there is significant traffic increases, particularly if the expected coal
traffic is to be routed over the IMRL. If the DME has expectations to provide significant
upgrade to the infrastructure of the IMRL (with potential capacity improvements), what are
the potential environmental and community impacts, if any? And what mitigation may be
needed?
The DM2E provided an Environmental Impact Analysis for the entire DME route in its
application to STB for the Powder River Basin project. The IMRL routes were not
considered in that application and environmental analysis. Under the proposed merger, will
the DME provide a similar effort relative to potential traffic increases to IMRL routings and
to the communities affected? Would this type of analysis be needed?
Surface Transportation Board
April 4, 2002
Page 3
Again, these and other questions related to environmental and community concerns need to
be raised through the STB process, and the exempt application process would be insufficient
to address these issues.
Impacts on shippers -- The direct impacts of this proposed merger to Iowa shippers is
unknown at this time. Without a full STB process, understanding of the impacts to shippers
and the state economy wilt not be fully understood. The majority of shippers on the IMRL
in Iowa are grain shippers and they currently have all the access and service that would be
provided under the proposed merger. It does not appear the DME route will provide any
significantly new destinations or markets for Iowa grain shippers. However, the benefits
may be more indirect through improved operations and grain, market competition A full
understanding of these impacts and the market implications can only be gained through a
full STB process.
In conclusion, the Iowa Department of Transportation supports the STB in its regulatory
role. Trying to balance the needs of the rail industry for timely decisions and ensuring
appropriate opportunities are provided to those affected by industry actions is difficult and
important. In the case of this proposed action, we ask that the balance be met through a full
STB process and not through the expedited process of exemption.
If you have any questions, please contact John Hey of our IVIodal Division at 800 Lincoln
Way, Ames, IA 50010, telephone 515-239-1653 or E-mail john.hey@dot, state.ia, us.
Sincerely,
Mark F. Wandro
Director
tMFW:et
CC~
Iowa Congressional Delegation
Governor Thomas J. Vilsack
I & M Rail Link
DME Rail Corporation
RPE-11-2002 THU 12~54 P~ BORED OF SUPEEVISERS FRX NO. 563 589 7884 P, 02
PHONE: ~;~,,~444"1
FAX: s6~,~89,-78E4
~MAIL: brdof~.lp~dbqgu,org
April l0,2002 -
COURTHOUSE
DUBUQUE, IOWA 52001-7053
DONNA L $~IITH
ALaN R, MANTERNACH
JIM WALL;R
Board o£Dkectors
DMATS Policy Committee
Dear Members of the Board of Directors:
Via Fax: 556-0438
The Dubuque County Board of Supervisors h~_~ received the attaohed letter fi.om Mark Wandro,
Director,. Iowa Department of Transportation, ~out a poteafial merger application to the Surface
Transportation Board. ~
Please take a~tion at our meeting of April 11 that the proposed merger not be declared "exempt"
as defined in 49 CF~. 1180.2 and that all interested parties be provided ample time to comment
and participate in the proceeding be~ansethis railroad merger is of vital interest to our area and
the State oflowa and will have a significant effi~t on rail service in Iowa on the shipper served
and on our corarmmities,
I believe that th/s request for time to carefully consider the effects of the proposed merger is
r~asonable.
Sincerely,
jh
Donna L, Smith, Chairperson
Dubuque County Board of Supervisors