Contract analysis

I. Executive Summary This memorandum analyzes the Federal Energy Regulatory Commission's ("FERC" or "Commission") policies, precedent, and evolving standards regarding creditworthiness provisions in open-access transportation tariffs and recommends specific tariff language for inclusion in the redesigned FERC Gas Tariff, Original Volume No. 1, of Ridgeline Midstream Services LLC ("Ridgeline" or the "Company"). The pu

1. Tiered Creditworthiness Framework Based on Investment-Grade Credit Ratings. Establishment of a three-tier classification system: Tier 1 for investment-grade rated shippers; Tier 2 for non-investment-grade but financially qualified shippers; and Tier 3 for shippers requiring full collateralization of their obligations.

2. Defined Collateral Requirements. Clear specification of acceptable forms of credit assurance for shippers that do not meet the minimum unsecured credit thresholds, including irrevocable standby letters of credit, cash deposits in segregated escrow accounts, surety bonds, parent or affiliate guarantees, and prepayment.

3. Unsecured Credit Limits Calibrated to Shipper Financial Capacity. A formulaic approach to calculating unsecured credit limits based on tangible net worth and estimated maximum monthly obligations, with differentiated limits for Tier 1 and Tier 2 shippers.

4. Flexible Creditworthiness Evaluation Procedures. Transparent, objective evaluation procedures with defined timelines, applicable to both rated and non-rated shippers, ensuring that creditworthiness determinations are made within 10 business days and that shippers receive written notice of the basis for any determination.

5. Dispute Resolution Mechanisms. A multi-step process providing shippers with the right to request reconsideration of adverse creditworthiness determinations, followed by access to FERC complaint procedures or the tariff's general dispute resolution provisions.

6. Provisions Reflecting FERC's Evolving Standards on Non-Discriminatory Creditworthiness Requirements. Incorporation of non-discrimination requirements, provisions for governmental and municipal shipper treatment, and ongoing monitoring mechanisms consistent with the Commission's most recent policy pronouncements. Practical Significance. The design of workable and FERC-compliant creditworthiness provisions is of par

II. Background and Procedural Posture A. Overview of the Ridgeline Pipeline System and Filing Ridgeline Midstream Services LLC is a Delaware limited liability company, the sole member of which is Dunmore Energy Holdings Ltd., a Cayman Islands exempted limited company (Company Registration No. CR-381204). Ridgeline maintains its principal office at 700 Kanawha Boulevard East, Suite 1400, Charleston, West Virginia 2530

III. FERC Policy Framework on Creditworthiness Provisions A. Statutory and Regulatory Authority The Commission's authority to regulate creditworthiness provisions in open-access transportation tariffs derives from the Natural Gas Act ("NGA"), 15 U.S.C. §§ 717 et seq., and the Commission's implementing regulations. Natural Gas Act Section 4 (15 U.S.C. § 717c) requires that all rates, charges, and terms and conditions

1. Objectivity and Transparency. Creditworthiness criteria must be objective and stated in the tariff itself. The pipeline cannot rely on subjective standards such as "sole discretion," "reasonable satisfaction," or other formulations that vest unlimited evaluative authority in the pipeline without specifying the criteria to be applied. The tariff must define the specific financial metrics, credit ratings, or other c

2. Non-Discrimination. The same creditworthiness standards must be applied to all shippers, whether affiliated or unaffiliated with the pipeline, whether large or small, and regardless of the type of service requested (firm or interruptible). The Commission has been particularly vigilant about ensuring that creditworthiness provisions are not used as a mechanism for favoring pipeline affiliates or for discouraging co

3. Alternatives for Non-Investment-Grade Entities. The tariff must provide meaningful alternatives for shippers that do not carry investment-grade credit ratings from nationally recognized statistical rating organizations. This principle is of particular relevance to Ridgeline's tariff design given the composition of the MGPC membership — fourteen independent producers, many of which may lack formal credit ratings de

4. Right to Adequate Assurance. The pipeline has a legitimate right to assure itself of the shipper's ability to pay for transportation services rendered. This right is grounded in the NGA and in common-law principles of adequate assurance. The pipeline may require collateral or other credit support from shippers that do not demonstrate sufficient creditworthiness, and may take protective action (including suspension

5. Proportionality. Collateral requirements should be reasonably related to the shipper's actual or estimated obligations under its service agreement(s) with the pipeline. The Commission has rejected collateral requirements that are excessive relative to the shipper's exposure, as such requirements may effectively function as a barrier to access. Collateral amounts should be calibrated to a reasonable multiple of the

6. Dispute Resolution. The tariff should provide a clear process by which a shipper can challenge an adverse creditworthiness determination. At a minimum, this process must include the right to file a complaint with the Commission under Section 5 of the NGA. Best practices also include an internal reconsideration process and, where applicable, referral to the tariff's general dispute resolution provisions (negotiatio

7. Governmental and Municipal Entities. Governmental bodies, including municipal authorities, state agencies, and other political subdivisions, present a fundamentally different credit risk profile than private-sector shippers. The Commission has recognized that entities backed by the taxing authority of a governmental body should generally be presumed creditworthy and should not be required to post collateral absent

IV. Analysis of Deficiencies in Ridgeline's Original Tariff A. Summary of Original Creditworthiness Provisions Ridgeline's proposed FERC Gas Tariff, Original Volume No. 1, as filed on May 12, 2022, contained a single paragraph in the General Terms and Conditions addressing creditworthiness. Section 20 of the originally proposed tariff stated, in its entirety: "Any Shipper requesting Firm Transportation Service or Int

1. No objective standard for "adequate credit." The original provision relied on the undefined term "adequate credit" without specifying the financial metrics, credit ratings, or other criteria that would constitute adequate credit. This formulation fails the Commission's objectivity requirement.

2. Excessive discretion retained by Ridgeline. The "reasonable satisfaction" standard vested the creditworthiness determination in Ridgeline's subjective judgment, without constraining that judgment by reference to specified criteria. The Commission has rejected analogous formulations in prior proceedings.

3. No specification of minimum credit rating or alternative evaluation criteria. The original provision did not identify a minimum credit rating threshold (such as BBB- or equivalent from an NRSRO) and did not describe any alternative evaluation criteria for shippers without formal credit ratings.

4. No unsecured credit limit calculation methodology. The original provision did not address the concept of unsecured credit limits and did not provide any formula or methodology for determining the amount of credit that a shipper could obtain without posting collateral.

5. No list of acceptable forms of credit assurance or collateral. The original provision did not identify the forms of collateral or credit support that Ridgeline would accept from shippers that do not meet the creditworthiness standard, in violation of the Commission's requirement that tariffs offer a menu of credit support options.

6. No timeframes for creditworthiness evaluation or notification. The original provision did not establish any timeline within which Ridgeline would complete its creditworthiness evaluation or notify the shipper of the results of that evaluation.

7. No right-to-cure provisions. The original provision did not address the shipper's right to cure a creditworthiness deficiency — for example, by posting collateral or providing a guarantee — before the pipeline takes adverse action such as suspending or terminating service.

8. No dispute resolution mechanism. The original provision did not include any process by which a shipper could challenge an adverse creditworthiness determination, whether through internal reconsideration, FERC complaint, or other dispute resolution procedures.

9. No separate provisions for governmental or municipal shippers. The original provision applied a single, undifferentiated standard to all shippers without recognizing the distinct credit profiles of governmental and municipal entities.

10. No provisions addressing creditworthiness on an ongoing basis. While the original provision referenced creditworthiness "on an ongoing basis during the term of any Service Agreement," it did not define the events or circumstances that would trigger a reassessment, the notice requirements applicable to such a reassessment, or the consequences of a material adverse change in a shipper's financial condition. Each of

V. Recommended Creditworthiness Framework A. Overview of Proposed Structure We recommend that the redesigned tariff include a comprehensive new Section 20 of the General Terms and Conditions, titled "Creditworthiness," consisting of fifteen (15) subsections addressing each element required by FERC policy and responsive to each specific deficiency identified in the Deficiency Letter and in our analysis above. The reco

1. Irrevocable Standby Letter of Credit. An irrevocable standby letter of credit issued by a U.S. commercial bank that (i) has minimum total assets of $10 billion as reported in its most recent publicly available annual financial statements, and (ii) carries a minimum long-term credit rating of A- (Standard & Poor's or Fitch Ratings) or A3 (Moody's Investors Service), or equivalent, from at least one NRSRO. It bears

2. Cash Deposit. A cash deposit held in a segregated, interest-bearing escrow account maintained at a qualifying financial institution designated by Ridgeline. Interest accruing on the cash deposit shall accrue to the benefit of the shipper. Ridgeline shall designate an escrow agent for this purpose; Pinnacle National Bank, N.A. or another qualifying institution may serve in this capacity. The terms of the escrow arr

3. Surety Bond. A surety bond issued by an insurer that carries a minimum financial strength rating of A- (or equivalent) from a nationally recognized insurance rating agency (e.g., A.M. Best Company). The surety bond must be in a form acceptable to Ridgeline and must name Ridgeline as the obligee.

4. Parent or Affiliate Guaranty. A guaranty from a parent company or affiliate of the shipper, provided that the guarantor entity meets the minimum Tier 1 credit rating threshold (investment-grade). The guaranty must be in the form attached to the tariff as an appendix. This form of credit assurance is essentially the same mechanism that qualifies a shipper for Tier 1 classification; it is listed here to clarify that

5. Prepayment. Prepayment of up to three (3) months of estimated transportation charges under the shipper's service agreement(s) with Ridgeline. Prepaid amounts shall be applied against the shipper's invoices as they become due and shall be replenished by the shipper as applied. Amount of Collateral. For Tier 3 shippers (no unsecured credit available), the required collateral amount equals three (3) months of the shi