CALDERWOOD & HARKNESS LLP
INTERNAL MATTER OPENING MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for use by authorized personnel of Calderwood & Harkness LLP in connection with the opening, administration, and oversight of the referenced client matter. This memorandum shall not be disclosed to any person outside the firm without the express written authorization of the Responsible Partner. Any unauthorized disclosure, copying, or distribution of this memorandum is strictly prohibited.
Matter Number: 1016-00005
Date of Opening: May 12, 2022
Practice Group: Energy & Infrastructure
Office: Washington, DC — 1601 K Street NW, Suite 900, Washington, DC 20006
Prepared By: David Stanton, Working Associate, Energy & Infrastructure
Reviewed By: George Trujillo, Responsible Partner, Energy & Infrastructure
1. CLIENT IDENTIFICATION
1.1 Primary Client
Full Legal Name: Dunmore Energy Holdings Ltd.
Short Name / Abbreviation: DEH or "Dunmore"
Entity Type: Exempted limited company organized and existing under the laws of the Cayman Islands
Jurisdiction of Formation: Cayman Islands
Cayman Registry No.: CR-381204
Registered Address: 4th Floor, Harbour Place, 103 South Church Street, George Town, Grand Cayman KY1-1002, Cayman Islands
Business Description: Dunmore Energy Holdings Ltd. is a strategic private energy company with diversified operations in oil and gas midstream infrastructure and renewable energy development. DEH's portfolio includes approximately 1,200 miles of midstream gathering and transportation pipelines located primarily in the Appalachian Basin and Mid-Continent regions, two cryogenic gas processing plants with combined processing capacity serving producers in the Marcellus and Utica shale formations, and a 250 MW wind energy portfolio currently under development across multiple project sites in the Upper Midwest and Mid-Atlantic regions. DEH operates through a series of wholly-owned subsidiary entities organized principally in Delaware and West Virginia. The company maintains its operational headquarters in Charleston, West Virginia, and its corporate and financial headquarters in New York, New York, with field offices at each of its major asset locations.
Key Principal: Patricia Dunmore — Founder, Chairperson of the Board, and controlling shareholder, holding approximately 72% of the outstanding equity interests in DEH. Ms. Dunmore founded DEH in 2014 and has served as Chairperson since inception. She is also a partner at Calderwood & Harkness LLP in the Energy & Infrastructure practice group. The dual role of Ms. Dunmore as both the controlling principal of the client and a partner of the firm is addressed in detail in Section 6 (Conflicts Clearance) below.
Estimated Enterprise Value: Approximately $2.8 billion, based on an internal valuation report prepared by management with input from Ridgepoint Appraisal & Valuation Inc., dated as of December 31, 2023. This valuation is based on a discounted cash flow analysis of the company's consolidated asset portfolio and has not been independently audited or verified by an investment bank for purposes of this memorandum.
Annual Revenue (2023): Approximately $485 million on a consolidated basis, as reported in DEH's audited financial statements for the fiscal year ended December 31, 2023, prepared by Ashford & McBride LLP.
1.2 Client Subsidiary / Applicant Entity
Full Legal Name: Ridgeline Midstream Services LLC
Short Name / Abbreviation: Ridgeline or "RMS"
Entity Type: Limited liability company
Jurisdiction of Formation: Delaware
EIN: 87-4231956
Registered Agent: Capitol Filings Inc., 1209 Orange Street, Wilmington, DE 19801
Principal Office: 700 Kanawha Boulevard East, Suite 1400, Charleston, WV 25301
Sole Member: Dunmore Energy Holdings Ltd. (100% ownership interest). Ridgeline is a wholly-owned, indirect subsidiary of DEH. There are no minority members, preferred equity holders, or other equity interests outstanding in Ridgeline as of the date of this memorandum.
Business Description: Ridgeline Midstream Services LLC owns and operates the Ridgeline Pipeline System, a 187-mile, 24-inch-diameter high-pressure natural gas transmission pipeline extending from a receipt point at the Wetzel County Interconnect located in Wetzel County, West Virginia, to a delivery point at the Waynesburg Compressor Station located in Greene County, Pennsylvania. The pipeline system has a design capacity of 1.2 billion cubic feet per day (Bcf/d) and currently operates at a throughput of approximately 680 million cubic feet per day (MMcf/d), representing an approximate utilization rate of 56.67%. The pipeline system is supported by three compressor stations — the Wetzel Station (Wetzel County, WV), the Mannington Station (Marion County, WV), and the Waynesburg Station (Greene County, PA) — with aggregate installed compression of 45,000 horsepower. The Ridgeline Pipeline System was placed into commercial service on October 1, 2021, following approximately 30 months of construction activity. The pipeline traverses portions of Wetzel, Marion, Monongalia, and Preston Counties in West Virginia, and portions of Greene County in Pennsylvania.
FERC Code: 960442
Key Officers:
• James K. Winfield — Chief Executive Officer & President. Mr. Winfield has served as CEO of Ridgeline since July 2020. He previously held senior operational and executive roles at multiple midstream companies in the Appalachian Basin and is the primary management-level point of contact for this engagement.
• Angela Moretti — Vice President, Finance & Treasurer. Ms. Moretti oversees all financial reporting, treasury functions, and regulatory accounting for Ridgeline and coordinates with DEH's corporate finance team. She is the principal contact for cost-of-service data, rate base calculations, and financial workpapers required for the FERC proceeding.
• Thomas Greaves — Vice President, Engineering & Operations. Mr. Greaves is responsible for pipeline operations, compressor station management, system integrity, and capital project planning. He is expected to serve as a testifying witness on engineering and operational matters in the FERC proceeding.
• Dr. Natasha Orlov — Director of Rates & Regulatory. Dr. Orlov manages Ridgeline's regulatory affairs, tariff compliance, and rate design work. She holds a Ph.D. in economics from the University of Virginia and previously served as a staff economist at FERC. Dr. Orlov is the primary internal regulatory contact and is expected to serve as a testifying witness on rate design and billing determinant issues.
2. MATTER DESCRIPTION
2.1 Nature of Engagement
Calderwood & Harkness LLP has been retained to represent Dunmore Energy Holdings Ltd. and its wholly-owned subsidiary, Ridgeline Midstream Services LLC, in proceedings before the Federal Energy Regulatory Commission ("FERC" or the "Commission") seeking (a) approval of an initial tariff rate for interstate natural gas transportation service on the Ridgeline Pipeline System, and (b) authorization for physical interconnection between the Ridgeline Pipeline System and the existing pipeline network of Appalachian Trunk Pipeline Company, LLC ("ATPC") at the Wetzel County Interconnect in Wetzel County, West Virginia.
The representation encompasses all aspects of the FERC rate case and interconnection authorization proceeding, from initial application through final Commission order and any subsequent proceedings. Specifically, the scope of the engagement includes the preparation, filing, and prosecution of the initial application and all supporting testimony, exhibits, rate schedules, and workpapers; the preparation and filing of responsive pleadings to any protests, motions to intervene, or comments submitted by other parties; participation in all settlement conferences before the designated Settlement Judge; representation in the Track II evidentiary hearing before the presiding Administrative Law Judge; post-hearing briefing; and any rehearing petitions and appellate proceedings that may arise. The engagement also encompasses negotiation and filing of the Interconnection Agreement with ATPC as a FERC rate schedule, as well as coordination with Ridgeline's third-party advisors and consultants in connection with the proceeding.
2.2 FERC Docket Numbers
The following FERC docket numbers have been assigned to the proceedings that are the subject of this engagement:
• Rate Case: Docket No. RP22-847-000 — Application for Initial Tariff Rate for Interstate Natural Gas Transportation Service on the Ridgeline Pipeline System
• Interconnection Authorization: Docket No. RP22-847-001 — Application for Authorization of Physical Interconnection between the Ridgeline Pipeline System and the Appalachian Trunk Pipeline System at the Wetzel County Interconnect
The Commission has consolidated these docket numbers for purposes of scheduling and hearing, and all pleadings and filings in connection with both matters are to be made under the above-referenced docket designations.
2.3 Regulatory Framework
The FERC proceedings that are the subject of this engagement are governed by the following statutory and regulatory authorities:
• Natural Gas Act ("NGA"), 15 U.S.C. §§ 717 et seq. — Specifically, Section 4 (rates and charges for natural gas transportation and sale for resale in interstate commerce), Section 5 (Commission authority to investigate and fix just and reasonable rates), and Section 7 (authorization of construction, extension, and acquisition of natural gas facilities and certification of public convenience and necessity).
• 18 C.F.R. Part 154 — Rate Schedules and Tariffs, governing the form, content, and filing requirements for FERC Gas Tariffs, including the filing of initial rates, rate schedule modifications, and supporting cost-of-service data.
• 18 C.F.R. Part 157 — Applications for Authorization of the Construction or Abandonment of Facilities and for Certification, governing applications for Commission authorization to construct, acquire, or operate interstate natural gas pipeline facilities, including interconnection facilities.
• 18 C.F.R. Part 284 — Certain Sales and Transportation of Natural Gas Under the Natural Gas Policy Act of 1978 and Related Authorities. In particular, Part 284, Subpart G, governs open-access transportation on interstate natural gas pipelines, including requirements for firm and interruptible transportation services, capacity allocation, and non-discriminatory access.
• Ridgeline FERC Gas Tariff, Original Volume No. 1 — The proposed initial tariff filing submitted concurrently with the application on May 12, 2022, setting forth the rate schedules, general terms and conditions, and forms of service agreement for firm and interruptible transportation service on the Ridgeline Pipeline System.
In addition to the foregoing, the Commission's Statement of Policy on Pricing Policy for New and Existing Natural Gas Pipeline Facilities (Docket No. PL04-3-000), the Commission's policy statements on certification of new interstate natural gas pipeline facilities, and applicable Commission precedent regarding initial rate design, cost-of-service methodology, and return on equity will be relevant to the proceedings.
2.4 Filing Summary
The application was filed with FERC on May 12, 2022, contemporaneously with the opening of this engagement. The key financial and operational parameters set forth in the application are summarized below:
Proposed Initial Recourse Rate:
The proposed initial recourse rate for firm transportation service (Rate Schedule FT-1) is $0.2265 per dekatherm (Dth), consisting of a reservation charge of $0.2223/Dth and a usage charge of $0.0042/Dth. The reservation charge is designed to recover the fixed costs of the pipeline system, including return on and of investment, fixed operating and maintenance expenses, administrative and general expenses, and taxes. The usage charge is designed to recover variable costs, primarily compressor fuel and lost-and-unaccounted-for gas. The proposed initial rate for interruptible transportation service (Rate Schedule IT-1) is derived from the firm transportation rate using a 100% load factor equivalent.
Rate Base:
The total rate base as filed is $612.40 million. The rate base includes the original cost of plant in service for the Ridgeline Pipeline System (including pipeline, compressor stations, metering facilities, and related appurtenances), adjusted for accumulated depreciation, working capital, and other standard rate base components. The rate base reflects the total construction cost of the pipeline system of approximately $587.2 million, plus capitalized allowance for funds used during construction (AFUDC) and other regulatory adjustments.
Total Cost of Service:
The total cost of service as filed is $97.36 million on an annualized basis. This figure includes the return on rate base, depreciation and amortization, income taxes (including the effects of accelerated depreciation and accumulated deferred income taxes), property taxes, operation and maintenance expenses, and administrative and general expenses.
Billing Determinants:
The billing determinants used to derive the proposed initial recourse rate are 438,000,000 Dth per year, calculated as follows: 1,200,000 Dth/day design capacity × 365 days × 100% load factor. The use of a 100% load factor for initial rate design purposes is consistent with prevailing Commission policy for new pipeline facilities.
Proposed Return on Equity (ROE):
The proposed ROE is 14.00%. This proposed ROE is supported by the pre-filed direct testimony of Dr. Raymond Braswell, who conducted a discounted cash flow (DCF) analysis, a capital asset pricing model (CAPM) analysis, and a risk premium analysis of a proxy group of publicly traded natural gas pipeline companies. The proposed ROE reflects, among other factors, the risks associated with a new pipeline system that has been in service for less than one year and has not yet achieved full subscription, as well as the general market risk premium for midstream infrastructure assets in the current interest rate and macroeconomic environment.
Capital Structure:
The proposed capital structure for ratemaking purposes is 55% equity and 45% debt. This capital structure reflects the actual capitalization of Ridgeline Midstream Services LLC as of the test period, consisting of equity contributions from DEH and long-term debt obligations under the Senior Secured Credit Facility and Second Lien Notes described in Section 5.3 below.
Cost of Debt and Weighted Average Cost of Capital:
The weighted average cost of debt is 5.25%, reflecting the blended interest rate on the Senior Secured Credit Facility (SOFR + 325 basis points) and the Second Lien Notes (7.875% fixed rate). The resulting weighted average cost of capital (WACC) is 10.0625%, calculated as (55% × 14.00% ROE) + (45% × 5.25% cost of debt).
Interconnection Facilities:
The application also seeks authorization for the physical interconnection of the Ridgeline Pipeline System with the ATPC pipeline system at the Wetzel County Interconnect, located at ATPC Milepost 412.6 in Wetzel County, West Virginia. The interconnection facilities include a metering and regulation station, pig launcher/receiver, associated piping and valving, electronic flow measurement equipment, and supervisory control and data acquisition (SCADA) integration. The estimated total cost of the interconnection facilities is $22.3 million. Ridgeline proposes that the costs be allocated between Ridgeline and ATPC based on the relative benefits received by each pipeline's shippers, resulting in an allocation of 34.1% to Ridgeline ($7.6 million) and 65.9% to ATPC ($14.7 million). This proposed cost allocation is based on an engineering study and benefit-cost analysis prepared by Ridgeline's engineering team under the direction of Thomas Greaves, VP, Engineering & Operations.
3. ENGAGEMENT TEAM
3.1 Staffing. The following Calderwood & Harkness LLP personnel have been assigned to this engagement as of the date of matter opening:
Additional staffing may be required as the proceeding advances, particularly in the event that the matter proceeds to a full evidentiary hearing and/or appeal. Any additional staffing will be approved by the Responsible Partner, George Trujillo, in consultation with the Lead Associate and the client, and documented through a supplemental staffing memorandum.
3.2 Notes on Billing Partner
Patricia Dunmore serves in a dual capacity on this engagement: (a) as Founder, Chairperson, and 72% controlling shareholder of the primary client, Dunmore Energy Holdings Ltd., and (b) as Billing Partner on this engagement at Calderwood & Harkness LLP. This dual role has been identified as creating a conflict of interest that requires careful management and disclosure. The conflict and its resolution are discussed in detail in Section 6 (Conflicts Clearance) below. A separate Conflict Waiver Memorandum has been prepared documenting the full analysis of the conflict under applicable rules of professional conduct, the informed consent obtained from both DEH and the Calderwood & Harkness Conflicts Committee, and the safeguards implemented to ensure the integrity of the representation.
As a result of the identified conflict, George Trujillo has been designated as the Responsible Partner for this engagement. Mr. Trujillo exercises independent day-to-day supervisory authority over all aspects of the representation, including strategic decisions, substantive legal work, staffing, billing oversight, and client communications. Ms. Dunmore's role as Billing Partner is limited to administrative billing functions, and she does not exercise supervisory authority over the substance or direction of the engagement. All substantive legal advice, strategic decisions, and work product are subject to Mr. Trujillo's independent review and approval.
4. COUNTERPARTIES AND OTHER PARTIES
4.1 Interconnecting Pipeline / Primary Counterparty
Full Legal Name: Appalachian Trunk Pipeline Company, LLC
Short Name: ATPC
Entity Type: Limited liability company organized under the laws of the Commonwealth of Pennsylvania
EIN: 25-1987643
FERC Code: 840117
Principal Office: 2200 Penn Center West, Suite 300, Pittsburgh, PA 15276
Registered Agent: Keystone Corporate Services LLC, 600 North Second Street, Harrisburg, PA 17101
Business Description: Appalachian Trunk Pipeline Company, LLC owns and operates a 640-mile FERC-jurisdictional interstate natural gas pipeline system serving markets in Pennsylvania, Ohio, and New York. The ATPC system has a current certificated capacity of approximately 3.8 Bcf/d and is one of the principal natural gas transmission systems in the Appalachian Basin, transporting production from the Marcellus and Utica shale formations to major demand centers and interconnections with other interstate and intrastate pipeline systems. ATPC has been in operation since 1964 and has undergone multiple expansions and modernizations over its operating history.
Parent Company: Tidewater Infrastructure Partners LP, a Delaware limited partnership. Tidewater Infrastructure Partners LP is a privately held infrastructure investment platform controlled by the Alderman family. The general partner of Tidewater Infrastructure Partners LP is Tidewater GP Inc., a Delaware corporation. Tidewater Infrastructure Partners LP holds 100% of the membership interests in ATPC. Tidewater's EIN is 51-0438712, and its estimated enterprise value is approximately $6.1 billion, based on publicly available information and industry reports.
Key Individuals:
• Harrison J. Alderman — Chairman of Tidewater Infrastructure Partners LP and patriarch of the Alderman family. Mr. Alderman founded Tidewater in 1987 and has served as Chairman since inception.
• Marcus R. Alderman — President and Chief Executive Officer of Tidewater Infrastructure Partners LP and ATPC. Marcus Alderman is the son of Harrison J. Alderman and has served in his current role since 2015.
• Sandra K. Fenton — Vice President, Regulatory Affairs, ATPC. Ms. Fenton is the principal regulatory contact at ATPC for the FERC proceeding and is the lead ATPC representative in interconnection negotiations.
Outside Counsel: Kellner, Royce & Dillard LLP, One PPG Place, Suite 2800, Pittsburgh, PA 15222. Lead Counsel: William Pratt, Senior Partner. Mr. Pratt is a well-known energy regulatory practitioner with extensive experience in FERC rate proceedings and pipeline interconnection disputes. He has represented ATPC and Tidewater in multiple prior FERC matters.
Position in Proceeding: ATPC filed a protest and motion to intervene in the proceeding on August 15, 2022. ATPC's protest raises two principal objections. First, ATPC contends that the proposed metering station design at the Wetzel County Interconnect is inadequate to accommodate bidirectional flow and does not meet ATPC's operational and measurement standards, arguing that the proposed design would compromise measurement accuracy and operational reliability at the interconnection point. Second, and more significantly, ATPC opposes the proposed cost allocation for the interconnection facilities, arguing that the $14.7 million in facilities costs assigned to ATPC under Ridgeline's proposed 34.1% / 65.9% allocation is improperly shifted to ATPC and its existing shippers. ATPC advocates a 50/50 cost split between Ridgeline and ATPC ($11.15 million each), contending that the interconnection confers approximately equal benefits on both systems. In addition, ATPC opposes Ridgeline's proposed ROE of 14.00%, advocating instead an ROE of 10.75% based on its own DCF analysis of comparable pipeline companies, reflecting ATPC's position that Ridgeline's proposed ROE substantially exceeds the range of returns currently authorized for similarly situated interstate natural gas pipelines.
4.2 Intervenor — Shipper Group
Full Legal Name: Mountainside Gas Producers Coalition
Short Name: MGPC
Entity Type: Unincorporated association of independent natural gas producers
Address: 1100 Main Street, Suite 210, Morgantown, WV 26505
Principal Contact: Calvin Dreyer, Executive Director. Mr. Dreyer has served as Executive Director of MGPC since 2018 and represents the coalition in regulatory and legislative matters affecting natural gas production in the Appalachian Basin.
Members: MGPC is an association of 14 independent natural gas producers with active drilling and production operations in the Marcellus and Utica shale formations in West Virginia, Ohio, and Pennsylvania. The coalition's members collectively produce approximately 2.1 Bcf/d of natural gas and are significant shippers on the Ridgeline Pipeline System, the ATPC system, and other interstate and gathering pipeline systems in the region.
Outside Counsel: Whitmore & Sable LLP, 1200 New Hampshire Avenue NW, Suite 600, Washington, DC 20036. Lead Counsel: Rebekah Montague, Partner. Ms. Montague is a recognized practitioner in FERC rate proceedings and has represented shipper groups in numerous pipeline rate cases before the Commission.
Position in Proceeding: MGPC filed a timely motion to intervene on July 28, 2022. MGPC generally supports the proposed interconnection between Ridgeline and ATPC, recognizing that the interconnection will provide additional transportation options and market access for Appalachian Basin producers. However, MGPC opposes the proposed recourse rate as excessive and unreasonable. MGPC's position is that the just and reasonable cost-of-service rate for firm transportation on the Ridgeline Pipeline System should not exceed $0.1740/Dth. In support of its position, MGPC has filed the testimony of its rate expert, Dr. Eleanor Vasquez, an independent energy economist, who conducted an independent cost-of-service analysis challenging several of Ridgeline's cost-of-service inputs, including the proposed ROE, the treatment of certain construction costs, and the allocation of administrative and general expenses. Dr. Vasquez proposes an ROE of 11.25%, which she contends is at the upper end of the zone of reasonableness for a new pipeline system of this type and risk profile. In settlement discussions, MGPC has indicated that it would be prepared to support a rate ceiling of approximately $0.2560/Dth, provided that the load factor used for rate design purposes is set at 85% or higher, reflecting MGPC's view that a higher load factor more accurately reflects the anticipated subscription levels on the Ridgeline Pipeline System.
4.3 Intervenor — Municipal End-User
Full Legal Name: Clearwater Municipal Gas Authority
Short Name: CMGA or "Clearwater"
Entity Type: Municipal authority organized under the Pennsylvania Municipality Authorities Act (53 Pa. C.S. §§ 5601–5623)
Address: 455 Market Street, Clearwater, PA 15330
Principal Contact: Dennis Ott, General Manager. Mr. Ott oversees the operations, financial management, and regulatory affairs of CMGA. Clearwater serves approximately 18,000 residential and commercial natural gas customers in southwestern Pennsylvania.
Outside Counsel: Fordham Municipal Law Group PC, 312 Adams Avenue, Suite 100, Scranton, PA 18503. Lead Counsel: Stephen Greer, Principal.
Position in Proceeding: CMGA filed a motion to intervene on August 1, 2022. CMGA's primary concern is the potential for rate increases on the ATPC system resulting from the proposed interconnection and the allocation of interconnection facility costs to ATPC. As a significant end-user taking delivery of gas transported on the ATPC system, CMGA is concerned that the proposed 65.9% cost allocation to ATPC will result in increased transportation costs that will ultimately be passed through to CMGA and its ratepayers. CMGA generally supports ATPC's position on cost allocation and has aligned itself with ATPC's advocacy for a 50/50 cost split. CMGA has not taken a formal position on Ridgeline's proposed recourse rate or ROE, as those issues do not directly affect CMGA's cost of service on the ATPC system.
4.4 FERC Trial Staff
Lead Trial Attorney: Jonathan Briggs, Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426. Mr. Briggs is the designated FERC Trial Staff attorney responsible for the prosecution of the Commission's interest in this proceeding. Trial Staff participates as an active party in the rate case with the full right to file testimony, conduct cross-examination, and submit briefs.
Lead Economic Analyst: Dr. Miriam Okafor, Office of Energy Market Regulation, Federal Energy Regulatory Commission. Dr. Okafor is the designated economic analyst assigned to review the cost-of-service filing, rate base calculations, and proposed rate design, and to prepare Trial Staff's independent analysis and testimony on rate and cost-of-service issues.
Role in Proceeding: FERC Trial Staff is an active participant in the rate case and is expected to file independent testimony on cost-of-service, rate design, and ROE issues. Trial Staff issued a Deficiency Letter dated January 19, 2023, identifying fourteen (14) specific deficiencies in Ridgeline's tariff filing. The deficiencies relate to, among other things, the treatment of AFUDC in the rate base, the calculation of accumulated deferred income taxes, the methodology for allocating administrative and general expenses between jurisdictional and non-jurisdictional activities, the adequacy of supporting documentation for certain construction cost items, and the derivation of the usage charge component of the recourse rate. Ridgeline's response to the Deficiency Letter, addressing each of the fourteen identified deficiencies, is being prepared by the engagement team in coordination with Ridgeline's internal regulatory and finance teams and external advisors.
4.5 FERC Judicial Officers
Administrative Law Judge: The Honorable Clara Whitfield, appointed by the Commission's Chief Administrative Law Judge on November 14, 2022, to preside over the Track II evidentiary hearing in Docket Nos. RP22-847-000 and RP22-847-001. Judge Whitfield has extensive experience presiding over natural gas pipeline rate cases and interconnection proceedings.
Settlement Judge: The Honorable Howard Margolis, appointed by the Commission's Chief Administrative Law Judge on September 22, 2022, to preside over settlement conferences in Docket Nos. RP22-847-000 and RP22-847-001. Settlement conferences are conducted on a non-binding basis under 18 C.F.R. § 385.603, and all settlement discussions and offers are treated as confidential and may not be used as evidence in the Track II hearing.
5. KEY THIRD PARTIES AND ADVISORS
5.1 Ridgeline's Advisors
The following third-party advisors have been retained by or are expected to be engaged by Ridgeline in connection with the FERC proceeding:
Note Regarding Braswell Energy Consulting Group LLC: Dr. Raymond Braswell served as Ridgeline's testifying ROE witness in the FERC proceeding, filing his pre-filed direct testimony on December 5, 2022. Dr. Braswell is a former senior economist at FERC and is a recognized expert in natural gas pipeline return on equity and cost-of-capital analysis. Dr. Braswell's direct testimony presents a DCF analysis, a CAPM analysis, and a risk premium analysis of a proxy group of publicly traded natural gas pipeline master limited partnerships and C-corporations, supporting Ridgeline's proposed ROE of 14.00%. Subsequent to the filing of direct testimony, Braswell Energy Consulting Group LLC was formally retained by Ridgeline under a separate engagement (BEC-2023-0041, opened April 15, 2023) to serve as a tariff redesign consultant in anticipation of potential Commission directives requiring modifications to the proposed tariff structure. The engagement with Braswell Energy Consulting Group was initiated following the issuance of the FERC Trial Staff Deficiency Letter on January 19, 2023, which raised questions regarding several aspects of the tariff filing that may require redesign or recalculation.
Ridgepoint Appraisal & Valuation Inc. was retained by DEH to prepare an independent appraisal of the Ridgeline Pipeline System for purposes of supporting the rate base as filed with FERC. The appraisal was conducted using a combination of cost, market, and income approaches, consistent with the Uniform Standards of Professional Appraisal Practice (USPAP).
Ashford & McBride LLP serves as the independent auditor and accountant for both DEH and Ridgeline. Ashford & McBride prepared the audited financial statements for DEH and Ridgeline for the fiscal years ended December 31, 2021, 2022, and 2023. The audited financial statements and supporting schedules form the basis for certain cost-of-service exhibits filed in the FERC proceeding.
5.2 Lenders and Noteholders
The following lenders and noteholders hold outstanding indebtedness of Ridgeline Midstream Services LLC and are relevant to this engagement both as potential parties with an interest in the outcome of the FERC proceeding and in connection with regulatory covenant compliance monitoring:
5.3 Financing Summary (for Reference in Regulatory Covenant Context)
The following is a summary of the outstanding indebtedness of Ridgeline Midstream Services LLC, provided for reference in connection with the regulatory covenant compliance monitoring aspects of this engagement:
Senior Secured Credit Facility:
• Facility: $400 million senior secured term loan and $75 million senior secured revolving credit facility
• Agent Bank: Pinnacle National Bank, N.A.
• Syndicate Composition: Pinnacle National Bank, N.A. (40% participation), Granite Trust Company (30% participation), Lakeshore Capital Bank (30% participation)
• Maturity Date: October 1, 2028
• Interest Rate: Secured Overnight Financing Rate (SOFR) plus 325 basis points, with a SOFR floor of 0.50%
• Credit Facility Agreement Date: September 15, 2021
• Outstanding Term Loan Balance (as of December 31, 2024): $362.8 million (reflecting scheduled amortization payments since the closing date)
• Security: First priority lien on substantially all assets of Ridgeline Midstream Services LLC, including the Ridgeline Pipeline System, compressor stations, metering facilities, and all real and personal property associated therewith
Second Lien Notes:
• Notes: $150 million aggregate principal amount of 7.875% Second Lien Senior Secured Notes due October 1, 2030
• Placement: Private placement to Harborview Capital Management LLC and Sentinel Ridge Fund LP
• Issuance Date: September 22, 2021
• Security: Second priority lien on substantially all assets of Ridgeline Midstream Services LLC, junior and subordinate to the first priority lien securing the Senior Secured Credit Facility
DEH Equity Contribution:
Dunmore Energy Holdings Ltd. made an equity contribution of approximately $37.2 million to fund the balance of the pipeline construction costs not funded by the Senior Secured Credit Facility and the Second Lien Notes. The total construction cost of the Ridgeline Pipeline System was approximately $587.2 million, funded as follows: $400.0 million from the term loan under the Senior Secured Credit Facility, $150.0 million from the Second Lien Notes, and $37.2 million from DEH's equity contribution.
Regulatory Covenant Relevance:
FERC tariff approval is a condition precedent to certain financial covenant calculations under the Senior Secured Credit Facility Agreement, including the calculation of "Consolidated EBITDA" and the minimum debt service coverage ratio covenant. Specifically, the credit agreement requires that Ridgeline obtain a final, non-appealable FERC order approving the initial tariff rate on or before a specified long-stop date, failing which an event of default may be triggered. Ongoing monitoring of the FERC proceeding's impact on covenant compliance is within the scope of this engagement, including preparation of periodic status reports and communications to the lender group as may be required under the credit agreement's information covenants. Coordination with Ridgeline's finance team and, if necessary, with separate counsel retained to advise on credit facility matters, will be an ongoing aspect of the engagement.
6. CONFLICTS CLEARANCE
6.1 Conflict Identified
A conflict of interest has been identified in connection with this engagement. The nature of the conflict is as follows:
Patricia Dunmore serves concurrently in two roles that create a potential conflict of interest:
(a) As Founder, Chairperson, and 72% controlling shareholder of the primary client, Dunmore Energy Holdings Ltd., Ms. Dunmore is the single most significant principal and beneficial owner of the client entity and exercises substantial control over its business affairs, strategic decisions, and governance; and
(b) As a partner at Calderwood & Harkness LLP, Ms. Dunmore has been designated as the billing partner for this engagement (C&H Matter No. 1016-00005), a role that carries certain administrative and supervisory responsibilities within the firm's engagement management framework.
This dual role creates a conflict of interest requiring analysis and resolution under the applicable rules of professional conduct. Specifically, the conflict implicates the New York Rules of Professional Conduct, Rule 1.7 (Conflict of Interest: Current Clients) and Rule 1.8 (Conflict of Interest: Current Clients — Specific Rules), insofar as Ms. Dunmore's personal and financial interests as the controlling owner of the client may conflict with or impair her ability to exercise independent professional judgment as a partner of the firm with responsibilities in connection with this engagement. In addition, FERC's rules governing practice before the Commission, including 18 C.F.R. Part 385, may impose additional obligations regarding disclosure and the avoidance of conflicts in the context of FERC proceedings.
6.2 Conflict Resolution
The dual role of Patricia Dunmore was fully disclosed to the Calderwood & Harkness Conflicts Committee and to the client, Dunmore Energy Holdings Ltd., prior to the commencement of the engagement. The following steps have been taken to resolve the conflict and to ensure that the representation can proceed without impairment of professional judgment:
1. Disclosure and Informed Consent — Client: The nature of the conflict was disclosed in writing to Dunmore Energy Holdings Ltd. Informed written consent was obtained from DEH through a consent letter signed by James K. Winfield, Chief Executive Officer and President of Ridgeline Midstream Services LLC, acting as the duly authorized officer of the client for purposes of providing informed consent on behalf of DEH. Mr. Winfield was selected to provide consent on behalf of the client in order to ensure that the consent was given by an individual who is independent of Ms. Dunmore and who has the authority and judgment to evaluate the potential impact of the conflict on the client's interests. The consent letter confirms that DEH has been fully informed of the nature of the conflict, the potential risks, and the safeguards that have been implemented, and that DEH consents to the representation notwithstanding the conflict.
2. Disclosure and Informed Consent — Calderwood & Harkness Conflicts Committee: The conflict was presented to the C&H Conflicts Committee, which reviewed the dual role and its implications under applicable professional responsibility rules. The Conflicts Committee determined that the conflict is consentable and approved the engagement subject to the implementation of the safeguards described below. The Conflicts Committee's determination was documented in a written memorandum.
3. Designation of Responsible Partner: George Trujillo has been designated as the Responsible Partner for this engagement. Mr. Trujillo exercises independent supervisory authority over all aspects of the representation, including the direction of legal strategy, the review and approval of all substantive work product, client communications, staffing decisions, and the management of the engagement's budget and billing. Ms. Dunmore's role as Billing Partner is limited to administrative billing functions. She does not participate in strategic or substantive decision-making in connection with this engagement, and all substantive matters are directed and supervised by Mr. Trujillo.
4. Separate Conflict Waiver Memorandum: A separate Conflict Waiver Memorandum has been prepared setting forth the full analysis of the conflict, the applicable rules of professional conduct, the informed consent documentation, and the safeguards implemented. The Conflict Waiver Memorandum is maintained in the firm's conflicts files and is cross-referenced to this Matter Opening Memorandum.
6.3 Adverse Party Conflicts Check
A comprehensive conflicts check was conducted on May 10, 2022, against Calderwood & Harkness LLP's full client database, including all current and former client representations, using the firm's standard conflicts clearance protocols. The conflicts check covered the following entities and individuals:
Client-Side Entities:
• Dunmore Energy Holdings Ltd.
• Ridgeline Midstream Services LLC
• Patricia Dunmore (individually)
• James K. Winfield, Angela Moretti, Thomas Greaves, Dr. Natasha Orlov (key officers)
Counterparties and Parties in the FERC Proceeding:
• Appalachian Trunk Pipeline Company, LLC
• Tidewater Infrastructure Partners LP
• Tidewater GP Inc.
• Harrison J. Alderman, Marcus R. Alderman, Sandra K. Fenton
• Mountainside Gas Producers Coalition
• Calvin Dreyer
• Clearwater Municipal Gas Authority
• Dennis Ott
Lenders and Noteholders:
• Pinnacle National Bank, N.A.
• Granite Trust Company
• Lakeshore Capital Bank
• Harborview Capital Management LLC
• Sentinel Ridge Fund LP
Opposing Counsel Firms:
• Kellner, Royce & Dillard LLP
• Whitmore & Sable LLP
• Fordham Municipal Law Group PC
Results: No current or former client representations were identified that are adverse to DEH, Ridgeline, or any party in the FERC proceeding. No lateral hire conflicts, personal conflicts, or other potential conflicts were identified with respect to any member of the engagement team. No representations were identified involving any of the lenders, noteholders, or opposing counsel firms that would create an adverse interest or other conflict under the applicable rules.
Clearance Granted: May 11, 2022, by the Calderwood & Harkness Conflicts Committee.
7. SCOPE OF REPRESENTATION
7.1 Primary Scope
The scope of Calderwood & Harkness LLP's representation of DEH and Ridgeline in connection with this engagement encompasses the following matters:
(a) Application and Filing. Preparation and filing of the application before FERC for an initial tariff rate for interstate natural gas transportation service on the Ridgeline Pipeline System (Docket No. RP22-847-000) and for authorization of the physical interconnection between the Ridgeline Pipeline System and the ATPC pipeline system at the Wetzel County Interconnect (Docket No. RP22-847-001). This includes the preparation of all required forms, certifications, and supporting documentation in compliance with FERC regulations and filing requirements.
(b) Tariff Drafting. Drafting of the Ridgeline FERC Gas Tariff, Original Volume No. 1, including rate schedules for firm transportation service (Rate Schedule FT-1) and interruptible transportation service (Rate Schedule IT-1), the General Terms and Conditions governing service on the Ridgeline Pipeline System, and the Forms of Service Agreement for both firm and interruptible service. The tariff will be prepared in accordance with the requirements of 18 C.F.R. Part 154 and applicable FERC policy and precedent.
(c) Cost-of-Service Exhibits and Workpapers. Preparation of cost-of-service exhibits (Exhibit Nos. A through P, inclusive), rate design workpapers, and all supporting data and schedules required to be filed in support of the proposed initial tariff rate, including schedules setting forth the rate base, cost of service, rate of return, depreciation rates, income tax calculations, billing determinants, and rate derivation.
(d) Pre-Filed Testimony. Preparation of pre-filed direct testimony for Ridgeline's witnesses in the FERC proceeding. Ridgeline anticipates presenting the testimony of seven (7) witnesses, including witnesses on the following topics: (i) policy and need for the pipeline and the proposed interconnection; (ii) engineering and operations; (iii) cost of service and rate design; (iv) return on equity; (v) depreciation; (vi) accounting and financial matters; and (vii) tariff terms and conditions. The engagement team will be responsible for the preparation, review, and filing of all pre-filed direct, answering, and rebuttal testimony.
(e) Responsive Pleadings. Preparation and filing of all responsive pleadings to any protests, motions to intervene, comments, or other filings submitted by other parties in the proceeding, including answers to protests, responses to motions, and objections to the admission or exclusion of evidence.
(f) Track II Evidentiary Hearing. Representation of Ridgeline in the Track II evidentiary hearing before the presiding Administrative Law Judge, including the preparation of witness testimony, cross-examination of opposing witnesses, the introduction and defense of exhibits, and the submission of proposed findings of fact and conclusions of law.
(g) Settlement Conferences. Participation in all settlement conferences before the Settlement Judge, including the preparation of settlement proposals, the evaluation of counterparty settlement positions, and the negotiation of settlement terms on behalf of Ridgeline.
(h) Interconnection Agreement. Negotiation, drafting, and filing of the Interconnection Agreement between Ridgeline and ATPC governing the physical interconnection at the Wetzel County Interconnect, including all technical, operational, and financial terms and conditions of the interconnection. The Interconnection Agreement will be filed with FERC as a rate schedule.
7.2 Ancillary Scope