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The $405 million Tongue River Railroad proposed for southeast Montana is the latest casualty of the crashing coal economy.

The federal Surface and Transportation Board published its unanimous decision Tuesday to kill the coal railroad given the recent bankruptcy of Arch Coal.

Arch was to develop the Otter Creek Mine south of Ashland, which the railroad was to serve. In March, Arch suspended its environmental permitting application to Montana's Department of Environmental Quality.

"At this time, there appears to be little prospect that Otter Creek Coal’s mine permit will be secured in the foreseeable future," the STB concluded. "Otter Creek Coal and its parent, Arch, have both filed for bankruptcy, and Otter Creek Coal has suspended its application for an MDEQ mining permit indefinitely."

The Otter Creek Mine had been in the works since 2010, when Arch Coal agreed to pay Montana $85.84 million for the development rights to 14 state-owned coal parcels in southeast Montana’s Otter Creek Valley. At the time, Arch Coal representatives told The Gazette that they would break ground at the mine in five years and be in full production by 2016.

Arch partnered in the Tongue River Railroad Co. with BNSF Railway and TRRC Financing, a limited liability company.

"The Tongue River Railroad Co. is disappointed with the decision today to dismiss our current application," said Matt Jones, BNSF spokesman for Montana and Wyoming. "In the event the development conditions improve in the future, renewing the project will require a new permit application and environmental review."

Last November, the railroad collaborators asked the federal government to suspend the permitting process for the would-be railroad until Otter Creek Mine’s permits were approved.

Neighbors who have battled Otter Creek Mine for decades weren't ruling out another mine proposal resurfacing at some point.

"I'm a little hesitant to say it's over, because for 30 years it hasn't been over," said Clint McRae, a rancher and member of Northern Plains Resource Council.

It was Northern Plains that asked the STB to reject the developers’ request that the Tongue River Railroad application be suspended, but kept alive. Tuesday’s published decision was a win for Northern Plains.

"It is certainly a step in the right direction," McRae said. "This decision amplifies what we've said all along, that this is a highly speculative venture that doesn't have any markets and shouldn't go forward."

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The railroad was running into stiff opposition not only from environmentalists objecting to coal development, but also from the Northern Cheyenne tribe, which last fall cited concerns about damage to tribal culture and the environment when asking STB to reject the railroad.

The coal economy is in rough shape. Natural gas, priced lower than coal, is poised to take over coal's spot as the nation's top source for electricity generation this year, according to the federal Energy Information Administration.

Coal exports aren't doing well either. With world coal supply exceeding demand, sale prices haven't been high enough to make it worthwhile to haul Powder River Basin coal by rail to the Pacific Northwest for shipping.

Three of America's largest coal companies — Arch Coal, Peabody Coal and Alpha Natural Resources — with mines in Wyoming and Montana have filed for bankruptcy in recent months.

Public concern about climate change has also driven states like Washington and Oregon to pass laws edging utilities away from coal power.

The federal Clean Power Plan rolled out last year might also require states to phase in cuts to greenhouse gas emissions by 2035, including in Montana where emissions cuts of 47 percent are prescribed. The Clean Power Plan is on hold pending litigation.

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Agriculture and Politics Reporter

Politics and agriculture reporter for The Billings Gazette.