[AUCTeX] configuration question

[Tom Sgouros]

Hello all:

I need to understand the difference between how AucTeX invokes TeX and how I do 
it at a shell.  When I use AucTeX, I get the following, reporting about a local 
class file I use.

> Running `LaTeX' on `plan' with ``/usr/texbin/pdflatex  
> -interaction=nonstopmode "\input" plan.tex''
> This is pdfTeX, Version 3.1415926-1.40.10 (TeX Live 2009)
> entering extended mode
> LaTeX2e <2009/09/24>
> Babel <v3.8l> ...
>
> (./plan.tex
>
> ! LaTeX Error: File `ts-report.cls' not found.

On the same machine, running at the shell, all is fine:

> $ /usr/texbin/pdflatex plan.tex
> This is pdfTeX, Version 3.1415926-1.40.10 (TeX Live 2009)
> entering extended mode
> (./plan.tex
> LaTeX2e <2009/09/24>
> Babel <v3.8l> ...
>
> (/Users/tomfool/texmf/tex/latex/ts-report.cls
> Miscellaneous reports class -- Tom Sgouros - 2010
> (/usr/local/texlive/2009/texmf-dist/tex/latex/memoir/memoir.cls
> ...

The file in question is in a local texmf tree I use, and texhash has been run 
on it recently.  This is GNU Emacs 23.2.1 compiled for a Mac.  To make it a 
little more mysterious, AucTeX was working for me last week.  I am not sure 
what happened in the interim.  I did move the emacs install directory, but 
can't remember whether the move was before or after the problem began.

I can't find in the list archives or in the documentation enough detail about 
how AucTeX invokes TeX to understand what my problem is.  Can anyone here help 
me?

Many thanks,

 -tom