Contract analysis

I. INTRODUCTION AND QUALIFICATIONS A. Identification and Purpose Q. Please state your name, business address, and position. A. My name is Dr. Raymond Braswell. My business address is Braswell Energy Consulting Group LLC, 8300 Greensboro Drive, Suite 450, McLean, Virginia 22102. I am the Lead Consultant and founder of Braswell Energy Consulting Group LLC, a consulting firm specializing in energy regulatory economics,

1. Return on Equity. The appropriate ROE for Ridgeline is 14.00%. This ROE is based on a discounted cash flow proxy group analysis utilizing a group of ten comparable publicly traded natural gas pipeline companies. The 14.00% ROE falls within the zone of reasonableness established by the proxy group DCF results and is positioned in the upper portion of that zone to account for the specific risk characteristics of Rid

2. Capital Structure. The appropriate capital structure for ratemaking purposes is 55% equity and 45% debt. This hypothetical capital structure reflects the capital structures maintained by comparable publicly traded natural gas pipeline companies in the proxy group and is consistent with FERC precedent for new natural gas pipelines. Ridgeline's actual capital structure, which consists of approximately 6.34% equity a

3. Cost of Debt. The weighted average cost of debt is 5.25%, derived from the weighted average of Ridgeline's two debt tranches: a $400 million senior secured term loan and $150 million in second lien senior secured notes.

4. Weighted Average Cost of Capital. The resulting WACC is 10.0625%, calculated as follows: (0.55 × 14.00%) + (0.45 × 5.25%) = 7.70% + 2.3625% = 10.0625%.

5. Return on Rate Base. The return on Ridgeline's filed rate base of $612.40 million is $61.62 million ($612.40 million × 10.0625% = $61.62 million, rounded).

6. Consistency with Precedent and Capital Attraction. The proposed ROE and capital structure are consistent with FERC precedent, are within the zone of reasonableness, and are necessary to attract and retain capital investment for this new pipeline system, which entered service on October 1, 2021, at an original construction cost of $587.2 million. The specific analyses supporting each of these conclusions are presen

II. OVERVIEW OF RIDGELINE MIDSTREAM SERVICES LLC AND THE RIDGELINE PIPELINE SYSTEM A. Corporate Structure Q. Please describe the corporate structure of Ridgeline Midstream Services LLC. A. Ridgeline Midstream Services LLC is a Delaware limited liability company organized for the purpose of owning and operating the Ridgeline Pipeline System for interstate natural gas transportation service. The sole member of Ridgelin

III. LEGAL STANDARD FOR DETERMINATION OF ROE A. FERC's DCF Methodology Q. What methodology does FERC employ to determine the appropriate ROE for a natural gas pipeline? A. Under long-established FERC precedent and policy, the appropriate methodology for determining the ROE for a natural gas pipeline is the discounted cash flow ("DCF") model. The Commission has consistently applied the DCF model as the primary analyti

IV. DCF PROXY GROUP SELECTION A. Screening Criteria Q. How did you select the proxy group of comparable companies for your DCF analysis? A. I selected the proxy group using a systematic set of screening criteria designed to identify publicly traded companies with risk profiles, business characteristics, and regulatory environments that are reasonably comparable to those of Ridgeline. The use of a proxy group composed

1. Crestline Pipeline Partners LP ("CPP"). Crestline Pipeline Partners is a master limited partnership that owns and operates approximately 2,400 miles of interstate natural gas transmission pipelines in the Gulf Coast and Southeast regions of the United States. CPP's FERC-jurisdictional pipeline systems include the Louisiana Mainline System (1,100 miles, 2.1 Bcf/d capacity) and the Southeastern Lateral System (1,300

2. Blackridge Midstream Corporation ("BMC"). Blackridge Midstream is a C-corporation that owns and operates a diversified portfolio of midstream natural gas infrastructure, including approximately 3,100 miles of gathering and transportation pipelines, three natural gas processing plants, and associated compression facilities in the Permian Basin and Eagle Ford Shale regions of Texas. BMC's FERC-jurisdictional assets

3. Allegheny Gas Transmission Holdings Inc. ("AGTH"). Allegheny Gas Transmission is a C-corporation that owns and operates approximately 1,800 miles of interstate natural gas pipelines in the Appalachian Basin and Mid-Atlantic region. AGTH's principal asset is the Allegheny Main Line, a 1,200-mile, 2.8 Bcf/d pipeline system that provides transportation service from production areas in West Virginia and Pennsylvania t

4. Greystone Energy Transfer LP ("GET"). Greystone Energy Transfer is a master limited partnership that owns and operates approximately 4,500 miles of natural gas and natural gas liquids pipelines across the central United States, including the Northern Plains System (1,600 miles, 2.2 Bcf/d) and the Missouri Valley System (1,200 miles, 1.5 Bcf/d). GET is publicly traded on the NYSE under the ticker symbol "GETP" with

5. Summit Corridor Pipeline Company ("SCPC"). Summit Corridor Pipeline is a C-corporation that owns and operates the Summit Corridor Pipeline, a 380-mile, 1.6 Bcf/d interstate natural gas pipeline in the Rocky Mountain region, along with associated gathering and processing assets. SCPC is publicly traded on the Nasdaq under the ticker symbol "SCPC" with an approximate market capitalization of $2.1 billion. SCPC holds

6. Rivermark Natural Gas Partners LLC ("RNG"). Rivermark Natural Gas Partners is a publicly traded limited liability company that owns and operates approximately 2,800 miles of natural gas gathering, processing, and transportation pipelines in the Marcellus and Utica Shale regions of Pennsylvania, West Virginia, and Ohio. RNG's FERC-jurisdictional assets include the Keystone Transmission Pipeline (600 miles, 1.8 Bcf/

7. Ironclad Infrastructure Inc. ("ICI"). Ironclad Infrastructure is a C-corporation that owns and operates a portfolio of natural gas and crude oil pipeline systems across the Southeast and Gulf Coast regions, totaling approximately 3,200 miles of pipeline. ICI's FERC-jurisdictional natural gas pipeline assets include the Gulf Central Pipeline (900 miles, 2.4 Bcf/d capacity). ICI is publicly traded on the NYSE under

8. Heartland Midstream Holdings LP ("HMH"). Heartland Midstream Holdings is a master limited partnership that owns and operates approximately 1,900 miles of natural gas gathering, processing, and transportation pipelines in the Mid-Continent region, including Oklahoma, Kansas, and the Texas Panhandle. HMH is publicly traded on the NYSE under the ticker symbol "HMHP" with an approximate market capitalization of $2.8 b

9. Northwind Gas Transportation Corp. ("NGT"). Northwind Gas Transportation is a C-corporation that owns and operates the Northwind Pipeline, a 520-mile, 2.0 Bcf/d interstate natural gas pipeline in the Northeast, along with two shorter lateral pipelines and associated compression facilities. NGT is publicly traded on the Nasdaq under the ticker symbol "NGTC" with an approximate market capitalization of $3.0 billion.

10. Cascade Valley Pipeline Partners LP ("CVPP"). Cascade Valley Pipeline Partners is a master limited partnership that owns and operates approximately 1,100 miles of natural gas transportation pipelines in the Pacific Northwest and Northern California. CVPP's principal asset is the Cascade Valley Pipeline (700 miles, 1.3 Bcf/d capacity). CVPP is publicly traded on the NYSE under the ticker symbol "CVPP" with an appr

V. DCF ANALYSIS — DIVIDEND YIELD A. Methodology. Q. How did you calculate the dividend yield component of the DCF model for each proxy group company? A. The dividend yield component of the DCF model represents the expected current return that an investor receives through cash dividends (or distributions) relative to the price paid for the stock. I calculated the dividend yield for each proxy group company using the f

VI. DCF ANALYSIS — GROWTH RATE A. Short-Term Growth Rate Q. How did you determine the short-term growth rate for each proxy group company? A. The short-term growth rate for each proxy group company is based on the consensus of analysts' projected earnings per share ("EPS") growth rate forecasts. I obtained these consensus growth rate forecasts from Meridian Analytics, a recognized financial data service that compiles

VII. DCF RESULTS AND ZONE OF REASONABLENESS A. Individual Company DCF Results Q. What are the individual DCF results for each proxy group company? A. The DCF result for each proxy group company is calculated by adding the dividend yield (D₁/P₀) and the composite growth rate (g) for that company. The individual DCF results — representing the indicated cost of equity for each proxy group company — are as follows: The i

1. New Pipeline Risk Premium. Ridgeline entered service on October 1, 2021 — only approximately fourteen months before the filing of this testimony. It is a newly constructed pipeline with a very limited operating history. By contrast, the proxy group companies are established enterprises with pipeline systems that have been in operation for years or, in many cases, decades. The proxy group companies have demonstrate

2. Utilization Risk. The Ridgeline Pipeline System is currently operating at approximately 680 MMcf/d, which represents only 56.67% of the system's design capacity of 1.2 Bcf/d (1,200,000 Dth/d). The system is in its ramp-up phase, and there is meaningful uncertainty regarding the pace and ultimate level of throughput growth. While Ridgeline expects that throughput will increase as additional shippers execute transpo

3. Single-Asset Risk. Ridgeline's rate base is concentrated in a single 187-mile pipeline system. The company does not own or operate any other pipeline systems, processing plants, or midstream infrastructure assets. This concentration of risk in a single asset exposes Ridgeline to greater vulnerability to any event or condition that could affect that single asset — including force majeure events, regulatory actions,

4. Private Ownership. As a privately held subsidiary of DEH, Ridgeline does not have access to public equity capital markets. It cannot raise equity capital through public stock offerings or access the depth and liquidity of the public equity markets. Instead, Ridgeline must rely on equity contributions from DEH or, potentially, from private equity investors. This limitation on capital market access increases the cos

5. Regulatory Risk. This is Ridgeline's initial rate filing before the Commission. There is no established tariff rate, no prior rate case history, and no track record of Commission review or approval of Ridgeline's cost of service or rate of return. The outcome of this proceeding will establish the initial benchmark for Ridgeline's regulated rate, and there is inherent uncertainty regarding the result. By contrast,