GILLETTE -- Wyoming coal producers and their customers may not have a third suitor for rail service.

The Federal Railroad Administration said Monday that it denied a $2.3 billion loan request by the Dakota, Minnesota and Eastern Railroad Co., which has tried for some 10 years to finance a third rail line into Wyoming's prolific Powder River Basin coal mining district.

Federal Railroad Administrator Joseph H. Boardman said he believed the risk of DM&E defaulting on the loan was too high.

For utilities in the Midwest and East, rail transportation remains the biggest cost of using Powder River Basin coal. For that reason, Wyoming coal producers could benefit from the competition a third rail company could bring, said Marion Loomis, executive director of the Wyoming Mining Association.

Currently, only BNSF Railway and Union Pacific Railroad serve the Powder River Basin coal industry. Loomis said BNSF had the industry to itself for many years, but when Union Pacific entered the basin in the 1990s, utilities saw a 30 percent decrease in the cost of transportation.

"So it would have been my hope that if we saw additional competition that we'd see those shipping rates moderate, and utilities would look even more favorably on Powder River Basin coal," Loomis said in a phone interview Monday.

But neither UP nor BNSF -- nor their utility customers -- seems to be waiting for a third line in the Powder River Basin. Recovering from derailments in 2006, the railroads managed an astonishing 10 percent increase in coal deliveries in 2006 and continue a massive capacity expansion.

The National Mining Association recently said its conversations with Powder River Basin producers point to a 2.4 percent increase in 2007.