A consultant for the city of Chattanooga on Wednesday questioned the validity of a "management audit" performed on behalf of the Tennessee-American Water Co. to help justify its current rate increase case.

Expert Michael Majoros said the audit, which was ordered in last year's rate case by the Tennessee Regulatory Authority, was intended to examine the appropriateness of service costs charged to the water company by its parent company, American Water Works Co., or a subsidiary, American Water Works Service Co.

But Mr. Majoros said the document generated by consultants Booz Allen Hamilton did not meet the regulatory authority's directive for a "management audit" to be performed under the strict standards of the 2002 federal law known as Sarbanes-Oxley.

In fact, Mr. Majoros questioned whether the $285,000 study really was an audit.

"If that audit had been done, there wouldn't be any question of prudence and reasonableness" of American Water Works charges to Tennessee-American, Mr. Majoros told authority directors on the last day of hearings on Tennessee-American's latest request for a 21.2 percent hike in its Chattanooga area water charges.

The increase would generate an estimated $7.6 million.

Tennessee-American officials say the Booz Allen study was indeed a management audit

But even as Mr. Majoros questioned the water company, his own temper soon boiled over as Tennessee-American attorney Ross Booher sought to challenge his professional credibility.

Under questioning by Mr. Booher, Mr. Majoros, who is vice president of Snavely King Majoros O'Connor & Bedell Inc., said he remains a certified public accountant but is on inactive status. He said he does not work as a CPA and does not advertise himself as such.

Mr. Booher questioned why Mr. Majoros continued to list himself as a member of the American Institute of Certified Public Accountants and handed him a printout of the group's membership qualifications that he said do not include inactive status.

"I'm telling you, that's an incomplete document, and I'm not going to respond to that," Mr. Majoros said, his voice rising. He then tore in half the page Mr. Booher had handed him.

That prompted regulatory authority Director Eddie Roberson, who is presiding over the hearing, to call a recess to have one of the City of Chattanooga's attorneys, Rick Hitchcock, speak with their witness. Mr. Majoros later returned and apologized, maintaining his composure as Mr. Booher continued to seek to "impeach" his credibility.

Later, authority directors heard testimony from Michael Gorman, another expert witness for the city and Chattanooga Manufacturers Association. Mr. Gorman questioned a variety of Tennessee-American's stated costs and said Tennessee-American's request for an 11.75 percent return on equity for investors should be more like 10.2 percent.

He also said the company's request for $7.6 million in new earnings should be slashed by $5.19 million.

Tennessee-American President John Watson described the hearing as "very comprehensive" and said he believes the company "has met our burden of proof for a requested rate increase."

The hearing, which began Aug. 18 in Chattanooga, wrapped up early Wednesday evening. It was supposed to end last Friday but spilled into this week due to the lengthy list of witnesses, voluminous testimony and cross examination.

Attorneys have until Tuesday to submit post-hearing briefs, and regulatory authority directors want to make a decision on the case by Sept. 22.

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