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VANCOUVER, British Columbia (Reuters) - U.S. regulators gave Canadian Pacific Railway Ltd the green light on Tuesday to take control of Dakota, Minnesota & Eastern Railroad Corp, which could eventually bring a third railroad to lucrative western U.S. coal fields.
The Surface Transportation Board said the $1.5 billion acquisition, announced last year, would not lessen competition in the rail industry, and no shippers would lose the option of competitive services because of the takeover.
But the board said it still wants to look at the potential environmental impact of increased coal shipments over the line if Canadian Pacific decides to pursue the closely held DM&E's plan to extend track into Wyoming's Powder River Basin.
Canadian Pacific was also told it had to continue efforts to improve safety on DM&E, and its subsidiary the Iowa, Chicago & Eastern Railroad.
Calgary-headquartered CP, Canada's second largest railway, which already has extensive operations in the United States, said it had agreed to all of the conditions set by regulators.
The prospect of increased coal and ethanol traffic and faster trains had drawn opposition from a group of communities and organizations along the DM&E, including the Rochester, Minnesota-based Mayo Clinic, which warned it will create safety issues.
"While not surprised by the ruling, we are nonetheless disappointed that our reasonable safety concerns weren't addressed," a spokesman for the Rochester Coalition said in a statement.
Canadian Pacific agreed to pay $1.48 billion for DM&E, including assumed debt. It will make $1 billion in contingency payments if it pursues construction of the 280-mile (450-km) line from South Dakota into Wyoming and reaches certain shipping targets by 2025.
CP actually paid for the DM&E last year, but could not take control of the railway until the board approved the deal.
Sioux Falls, South Dakota-based DM&E, which with the IC&E operates in eight U.S. states, has pursued a goal of being the third rail carrier in the Powder River Basin, North America's largest and fastest growing source of low-cost, low-sulphur coal.
Union Pacific Corp and Burlington Northern Santa Fe Corp, the No. 1 and No. 2 U.S. railroads respectively, are now the only lines hauling coal out of the basin. CP has not said when it will decide whether to pursue the project.
"That will take some time. We are still weighing the economics and regulatory certainty," CP spokeswoman Leslie Leslie Pidcock said.
The regulators said Canadian Pacific cannot move any coal traffic from the proposed expansion until the board has completed an environmental impact review.
CP has said it will benefit from the acquisition even if it does not pursue the coal expansion. The DM&E is the largest regional railroad in the United States, and the only regional line that interchanges freight traffic with all seven of North America's Class I railways.
Reporting Allan Dowd, editing by Rob Wilson