Boerries,
Not only do fewer diesels keep passenger service alive, it also frees up some of the existing, repowered and non-repowered locomotives to use in other service, like the freight service mentioned elsewhere.
The repowering mentioned in the article seems to provide better equipment utilization at a minimal cost to the WP&Y. I would bet that another benefit is reduced fuel consumption per train mile per locomotive as well. Yes, the horsepower is increased, but with the current diesel technology, fuel consumption has not increased in the same proportion as the horsepower.
This type of repowering was done by EMD when the original F units were produced. Many railroads had fleets of F-3's upgraded to F-7's and even F-9's as diesel technology advanced.
Seems to be very smart and far sighted of the WP&Y to invest in their future needs in such a manner.
Congratulations to them for looking forward rather than being paralyized by their past.
As for the gauge issue, who cares? The White Pass is for all intents and purposes insular. The gauge could be 42" or 60" and it wouldn't matter. Look at all the container traffic that they once handled on the 3' gauge. With the proper cars, they should have no problem staying at 3'. With all of the smaller railroads around the world, I'm sure that EMD, GE, Siemens, etc, would have a model that could be built or modified for their needs.
Rick