Contract analysis

I. Executive Summary This memorandum addresses Deficiency Item 3 as identified in the January 19, 2023 Deficiency Letter issued by the Federal Energy Regulatory Commission's Office of Energy Market Regulation (authored by Dr. Miriam Okafor, Lead Economic Analyst), which found that the initial tariff application filed by Ridgeline Midstream Services LLC ("Ridgeline" or the "Company") on May 12, 2022, under Docket Nos.

II. Background A. The Ridgeline Pipeline System Ridgeline Midstream Services LLC owns and operates a 187-mile, 24-inch-diameter high-pressure natural gas transmission pipeline (the "Ridgeline Pipeline System" or the "System") located in northern West Virginia and southwestern Pennsylvania. The System was constructed to provide open-access interstate transportation of natural gas from production areas in the Marcellus

III. Legal and Regulatory Framework for IT Rate Derivation A. Natural Gas Act Statutory Authority The Commission's authority to regulate the rates and charges for interstate natural gas transportation service derives from Sections 4 and 5 of the Natural Gas Act ("NGA"), 15 U.S.C. §§ 717c and 717d. Section 4 of the NGA requires that all rates and charges for the transportation of natural gas in interstate commerce be

IV. Proposed IT Rate Derivation A. Derivation from the Revised Firm Transportation Rate The derivation of the IT rate begins with the revised firm transportation rate established through the tariff redesign. The key parameters of the revised rate framework, as developed in coordination with Braswell Energy Consulting Group LLC, are as follows: Total Cost of Service (Revised): $103,150,000 The revised total cost of se

V. IT Revenue Crediting Methodology A. Overview of Proposed Crediting Mechanism We propose that Ridgeline implement an annual IT Revenue Crediting Mechanism ("ITRC") to credit actual IT revenues to firm shippers. The ITRC is designed to satisfy the Commission's requirement, articulated in Deficiency Item 3, that the tariff filing include "the proposed IT revenue crediting mechanism." The ITRC is also responsive to in

1. Revenue Collection Period. The revenue collection period for the ITRC will be each calendar year, January 1 through December 31. For the first partial year of operation under Rate Schedule IT-1, the revenue collection period will run from the effective date of the tariff through December 31 of that year.

2. Revenue Pool. The revenue pool for the ITRC will consist of all revenues collected from IT service under Rate Schedule IT-1 during the revenue collection period, including revenues from IT service at the recourse rate and, if applicable, at negotiated rates above the recourse rate. The gross revenue pool will be reduced by the following deductions to arrive at the net IT revenue available for crediting: (a) Variab

3. Credit Distribution. Net IT revenues will be credited to firm shippers on a pro rata basis, based on each firm shipper's contracted maximum daily quantity ("MDQ") as a percentage of the total contracted firm MDQ during the revenue collection period. The allocation formula is: Credit to Firm Shipper i = Net IT Revenue × (MDQi ÷ Σ MDQall firm shippers) Where MDQi is the time-weighted average MDQ of firm shipper i du

4. Filing and True-Up. Ridgeline will file an annual IT Revenue Crediting Report with the Commission within ninety (90) days after the end of each calendar year (i.e., by March 31 of the following year). The report will contain the following information: (a) Gross IT revenues collected during the revenue collection period, broken down by month and by IT shipper (to the extent consistent with confidentiality obligatio

5. FERC Review. The IT Revenue Crediting Report will be subject to Commission review and approval. The report will be filed as a compliance filing and will be noticed by the Commission for public comment. Any party may file comments or objections within thirty (30) days of the report filing. If no objections are filed and the Commission does not issue an order suspending or rejecting the report within sixty (60) days

6. Credit Application. Credits will be applied as an offset against future firm transportation invoices. Typically, the credits will be applied over the three-month period following FERC acceptance of the report (e.g., for a calendar year 2025 revenue collection period, the report would be filed by March 31, 2026, and credits would be applied to invoices for May, June, and July 2026, assuming FERC acceptance by April

7. Interaction with Revenue Credits in Cost of Service. The relationship between the ITRC and the revenue credits embedded in the base cost of service requires careful attention to avoid double-counting. In the original filing, $16.10 million was included as "revenue credit adjustments" in the total cost of service. This amount was not specifically identified as IT revenue credits and may have included other categori

VI. Comparison to Intervenor Positions A. MGPC Position (Dr. Eleanor Vasquez Testimony) The Mountainside Gas Producers Coalition, through its rate expert Dr. Eleanor Vasquez, has advanced two principal positions with respect to the IT rate. First, MGPC advocates that the IT rate be set no higher than the FT rate expressed on a 100% load factor equivalent basis. The proposed IT rate of $0.3140 per Dth is equal to the