GLEN ROSE – After two full days of testimony chalked full of facts, figures and expert opinion, Luminant Generation Company, LLC v. Somervell County Appraisal District rests in the hands of 18th District Court Judge John Neill. Following brief closing statements, Neill informed the sides he would notify of his decision by letter when it had been reached.
Neill did not announce a timetable for that decision.
Monday’s proceedings focused on the valuation of Luminant’s expert appraiser, Todd Filsinger, and Tuesday’s shifted focus to the appraisals performed by SCAD’s expert appraiser, Michael Lane and the original valuation provided by Somervell County Chief Appraiser Wes Rollen.
If the difference between Lane’s $2,947,330,000 valuation and Filsinger’s $949,121,000 was not evidence enough, take solace in the fact that the two approached the valuation of Comanche Peak quite differently. Where Filsinger used a hypothetical third-party buyer to base his valuations, Lane said it is just as important to consider the hypothetical seller, as well.
“I think it is important to note that Luminant, or whoever owns Comanche Peak, would never accept a purchase price that is based on operating expenses that are higher than what they can achieve in the future,” Lane said.
“[…] I think it is important when doing an appraisal to use an actual market,” added Lane when again questioned about the process. “It is important to note, though, that this is an individual asset and not an entire company.”
For the sake of redundancy, Lane did not agree with many, if any, of Filsinger’s criticisms of his $2.947 billion valuation.
Lane stood by his 73-percent-debt-to-26-percent-revenue ratio to determine capital structure and made it clear that he did he agree with the latter’s advised debt-to-revenue splits of 50-50 or 40-60.
The “bathtub curve effect” referred to by Filsinger on Monday is not a term Lane is familiar with, but he agreed that the general idea is one that is common within the industry.
Filsinger claimed Comanche Peak was sitting in the “trough” or bottom of the half-oval-shaped curve and was faced with an uphill travel sooner rather than later. Subsequently, Filsinger’s stance on the current state of Comanche Peak would call for more frequent repairs – and sooner – as units began to breakdown.
During cross-examination with the plaintiff’s legal team, Lane did not agree with Comanche Peak’s positioning on Filsinger’s curve and did not think the curve applied to the plant. Lane explained that, based on his research, the plant will not breakdown all at once, because repairs are already being made.
Following Monday’s session, Lane said he refreshed his memory on the bathtub curve, and, based on a scholarly piece written by a Texas A&M University professor, recalled the curve used by Filsinger to apply to only 10-15 percent of systems.
“I don’t think it is reasonable to assume that one of the best-run plants in the country would shutdown after 40 years,” said Lane after noting Comanche Peak’s ability to operate above its nameplate, especially during the colder months.
Lane agreed with SCAD’s attorney, Andrew J. Mytelka that if Filsinger had used management’s numbers that the latter’s valuation would be higher and he, in fact, would have provided a more conservative valuation of Comanche Peak. He also confirmed with Mytelka that if the company numbers found in Exhibit 21 – the internal Luminant document referred to on Monday – and Exhibit 22 were applied to Filsinger’s 7.25-percent discount rate, the appraiser’s valuation would total approximately $2.92 billion.
The use of Ventyx for forecasted numbers was defended by Lane prior to being passed to the plaintiff, as was his use of SNL Energy’s data after.
Lane explained that he chose to use Ventyx for forecasted numbers after previously losing out on bids to other appraisers who utilized the company’s services.
“I do believe that [Ventyx] is reliable,” Lane said. “I selected Ventyx because we have had a relationship with them [previously]. “
In order to calculate a capacity factor, Lane used the previous five years of SNL data. This was due to the absence of updated Luminant numbers for the 2014-operating year until after his original report was completed.
According to SNL Energy’s website, the company “integrates news, data and research in real time for the electric power, natural gas and coal industries.”
The website also states that, “From NYMEX pricing data and regulatory rate case information to commodity pricing and renewable energy trends, SNL provides expert intelligence that’s guaranteed to be accurate.”
“We would have rather relied on the company data for the original report,” Lane said.
Lane confirmed that Filsinger has recommended him for other jobs and noted that the appraisers industry is generally collegial.
Throughout his testimony, Lane remained insistent on the fact that the most important value is the discount rate and its application to revenue.
Judge Neill was given an opportunity by Mytelka to personally question Lane and declined.
Wes Rollen, SCAD
After the plaintiff’s objection to Rollen’s testifying as a possible expert witness, Neill allowed for Somervell County’s Chief Appraiser to take the stand as a fact witness.
The introduction of exhibit six – Rollen’s appraisal of Comanche Peak – was the cause for objection.
Rollen, who used a direct capitalization method in determining his appraisal compared to Lane and Filsinger’s use of discounted cash flow analysis, agreed with Russell that his appraisal is essentially a snapshot of revenue and costs.
Rollen explained that since Luminant did not provide him with numbers for 2014, his 2014 snapshot that was based on 2013 numbers.
Because of this, several of Rollen’s numbers were off during his appraisal.
Rollen’s annual production projection was approximately 11 million megawatts per hour higher than 2014’s actual number. As was his projected production level – 97 percent compared to 87 percent – and his use of $96 million for fuel costs, which, according to the Luminant’s 2014 numbers, was under the actual number of $141 million.
Rollen agreed that these changes were made, that his valuation would be lower, however, he stayed adamant that he was not provided new numbers and used the information available to him to the best of his ability.