20140827Comments.pdf

NEIL PRICE
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 6864
Street Address for Express Mail:
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
IN THE MATTER OF EASTERN IDAHO
RAILROAD'S OBJECTION TO ITS 2014
ASSESSMENT FEE.
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. EIR-R-14.07
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission (Commission), by
and through its attorney of record, Neil Price, Deputy Attorney General, and in respense to the
Notice of Objection to Assessment and Notice of Modified Procedure issued in Order No. 33046
on May 29,2014 in Case No. EIR-R-14-01, submits the following comments.
BACKGROUND
On May 15,2014, Eastern Idaho Railroad ("Eastern Idaho" or "Cempany") sent a letter
to the Commission registering its objection, pursuant to ldaho Code $ 61-1007, to the
Company's 2014 Railroad Assessment Fee. Eastem Idaho included several invoices as
attachments, documenting the Commission's fee assessment as well as the Company's Gross
Operating Revenues for the calendar year of 2013.
The Commission's operating budget is derived from the assessment of regulatory fees
upon utilities and railroads subject to the Commission's jurisdiction. Idaho Code $ 61-1003
STAFF COMMENTS AUGUST 27,2014
provides that on or before April 1't of each year, each railroad corporation shall report its gross
operating revenues from its intrastate railroad business in Idaho for the preceding calendar year.
Based upon the total amount of gross intrastate revenues reported by all the railroads, the
Commission then determines the proportionate assessment applicable to each railroad to recover
the Legislature' s authorized appropriation.
Once each railroad's assessment is determined, the Commission notifies the railroad of
its regulatory fee no later than May l't of each year. Such fee shall be paid to the Commission in
equal semi-annual installments. Idaho Code $ 6l-1005. Any utility or corporation may object to
the fee "on or before the time specified for payment for the first installment of the assessment
made against it." Idaho Code $ 61-1007.
In its letter to the Commission, Eastern Idaho acknowledges that it committed an error in
reporting to the Commission its gross interstate operating revenues instead of its gross intrastate
operating revenues. Allegedly, the difference between Eastern Idaho's 2013 Gross Interstate
Revenues ($16,336,596.00 - Company Attachment B) and its 2013 Gross Intrastate Revenues
($3,236,286.00 - Company Attachment C) is significant.
STAFF ANALYSIS
Total Revenues
In its Objection Letter, the Company claimed that instead of reporting intrastate revenues
for 2013 of $3,236,286 the Company reported interstate revenues of $16,336,596. (Objection
Letter at 1) This is total revenue of $19,572,882. The Company's tax accountant, Ms, Diane
Steffen CPA, mentioned in phone conversations that the Company had actually stated total
revenues for 2013, and not interstate revenues. In the initial Staff production requests, the
Company stated total revenues for 2013 to be $16,543,009. This conflicts with the Objection
Letter. Staff performed an audit of the revenues of the Company to determine the correct
amount. Staff was able to reconcile the accounting system output to the revenues found in the
audit and performed assurance testing on that revenue figure. Staff analysis reflects reasonable
certainty that the total revenues in 2013 for the Company are $16,543,009.
STAFF COMMENTS AUGUST 27,2014
Intrastate Revenues
Staff followed the methodology determined in Case No. EIR-R-01-01 to determine
intrastate revenue as all revenue o'...generated by activity that happens only in the State of Idaho.
The origination and ultimate destination must be within the state." (EIR-R-01-01, Staff Exhibit
No. 13, p. 6) This could be established on a load by load basis, but the general ledger system
does not have this detail broken out. The Company has an RMI system that is used to record the
origination and destination of each load used to create an allocation method for determining the
amount of intrastate freight revenue. Staff found in the audit that the RMI system cannot be
reconciled to the general ledger system and that there were many entries that had neither an
origination nor destination location indicated. The Company has identified this problem and
fixed this problem for 2014 so it should not be a concern in the future. Staff accepts that the
allocation is the best method with these circumstances and the allocation factor generally agreed
with the invoices inspected. This results in total intrastate freight revenue of $647,841.
Because the Company operates entirely in Idaho all other revenues take place in Idaho.
Therefore, the remainder of the revenue that is not freight related revenue will be assigned to
intrastate revenue. This includes demurrage revenue of $1,119,760, switching revenue of
$426,320, and incidental revenue of $1,468,623.
Staff recommends total intrastate revenue to be $3,660,544. See Confidential
Attachment A.
Other Findings and Recommendations
Staff discovered that there may have been other erroneous filings in the past. See
Confidential Attachment A. In the confidential response to Production Request 3, the Company
stated the changes in the internal procedures in order to prevent erroneous filings in the future.
Staff is very concerned about the lack of origination and destination information provided
in the RMI system, as well as the inability to reconcile the RMI output to the general ledger.
This resulted in using an allocation factor instead of direct assignment of revenues to interstate
and intrastate operations. The Company has stated that this problem has been fixed and will not
be an issue in the future.
After considering all of these factors Staff recommends that a subsequent audit be
performed on the 2014 revenue report. Revenues will be verified and internal controls will be
examined to assure that all of these changes are effective.
STAFF COMMENTS AUGUST 27,2014
RECOMMENDATIONS
Staff recommends an audit to be performed on the2014 revenue report with a special
focus on the effectiveness in the changes on internal oversight/controls.
Staff recommends the Commission accept the amount of $3,660,544 as the Idaho
Intrastate Operating Revenue for Eastern Idaho Railroad for the year 2Q13.
This would result in a reduction of $12,676,052 in reported ldaho Interstate Revenues
($16,336,596 - $3,660,544).
Respecttully submitted this /L* y day of August 2014.
Technical Staff: Joe Terry
Neil Price
Deputy Attorney General
Umisc/comments/eirr I 4. I npjt comments
STAFF COMMENTS AUGUST 27,2014
ATTACHME,NT A
IS
CONFIDE,NTIAL
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 27TH DAY oF AUGUST 2014,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. EIR-R-14.0I, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
AUSEY H ROBNETT, III
LEGAL COUNSEL
EASTERN IDAHO RAILROAD
70I E FRONT AVE, STE IOI
PO BOX E
COEUR D'ALENE ID 83816
E-MAIL: [e-mail]
CERTIFICATE OF SERVICE