UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION
Filed: May 12, 2022
APPLICATION OF RIDGELINE MIDSTREAM SERVICES LLC FOR APPROVAL OF INITIAL TARIFF RATE FOR INTERSTATE NATURAL GAS TRANSPORTATION SERVICE AND AUTHORIZATION FOR PHYSICAL INTERCONNECTION WITH APPALACHIAN TRUNK PIPELINE COMPANY, LLC, PURSUANT TO SECTIONS 4 AND 7 OF THE NATURAL GAS ACT AND 18 C.F.R. PARTS 154, 157, AND 284
George Trujillo, Responsible Partner Brett Callahan, Lead Associate David Stanton, Associate Calderwood & Harkness LLP 1601 K Street NW, Suite 900 Washington, DC 20006 Telephone: (202) 555-7100 Facsimile: (202) 555-7199
Email: gtrujillo@calderwoodharkness.com
Counsel for Ridgeline Midstream Services LLC
Right-click to update Table of Contents
I. PRELIMINARY STATEMENT
Ridgeline Midstream Services LLC ("Ridgeline" or "Applicant"), a Delaware limited liability company with its principal office at 700 Kanawha Boulevard East, Suite 1400, Charleston, West Virginia 25301, respectfully submits this Application to the Federal Energy Regulatory Commission ("Commission" or "FERC") pursuant to Sections 4 and 7 of the Natural Gas Act ("NGA"), 15 U.S.C. §§ 717c, 717f, and the Commission's regulations at 18 C.F.R. Parts 154, 157, and 284. By this filing, Ridgeline presents its initial tariff for Commission review and simultaneously seeks authorization for a physical interconnection that will materially enhance the transportation options available to natural gas producers and end-users in the Appalachian Basin.
Specifically, Ridgeline requests that the Commission: (1) approve an initial recourse rate of $0.2265 per dekatherm ("Dth") for firm interstate natural gas transportation service on the Ridgeline Pipeline System under Part 284, Subpart G of the Commission's regulations; and (2) authorize the physical interconnection of the Ridgeline Pipeline System with the existing pipeline network of Appalachian Trunk Pipeline Company, LLC ("ATPC") at the Wetzel County Interconnect in Wetzel County, West Virginia, pursuant to Section 7 of the NGA and the Commission's regulations at 18 C.F.R. Part 157.
Ridgeline concurrently files herewith its FERC Gas Tariff, Original Volume No. 1, containing proposed rate schedules, General Terms and Conditions, and a Form of Service Agreement for open-access transportation service. The proposed tariff has been prepared in conformity with the Commission's regulations at 18 C.F.R. Part 154, and all required exhibits, schedules, and supporting data are filed concurrently as identified in Section VII of this Application.
The proposed initial tariff rate is based on a test-year cost of service of $97.36 million and a rate base of $612.40 million. As demonstrated in the exhibits and workpapers filed herewith, and as supported by the pre-filed direct testimony of Dr. Raymond Braswell, Ridgeline's expert witness on return on equity, the proposed rate is just and reasonable and is consistent with Commission precedent governing initial rates for new interstate natural gas pipelines. The cost-of-service methodology employed herein follows established Commission principles, including the use of a levelized rate design over a twenty-five-year period, a capital structure of fifty-five percent equity and forty-five percent debt, a proposed return on equity of 14.00 percent, and a weighted average cost of debt of 5.25 percent.
The Ridgeline Pipeline System is a 187-mile, 24-inch-diameter high-pressure natural gas pipeline extending from the Wetzel County Interconnect in Wetzel County, West Virginia, to the Waynesburg Compressor Station in Greene County, Pennsylvania. The pipeline has been in service since October 1, 2021, and currently transports approximately 680 million cubic feet per day ("MMcf/d") of natural gas from Appalachian Basin production areas to downstream markets. The system was designed with a capacity of 1.2 billion cubic feet per day ("Bcf/d") and includes three compressor stations with aggregate installed compression of 45,000 horsepower.
Ridgeline is a wholly owned subsidiary of Dunmore Energy Holdings Ltd. ("DEH"), a Cayman Islands exempted limited company (Cayman Registry No. CR-381204) with its registered address at 4th Floor, Harbour Place, 103 South Church Street, George Town, Grand Cayman KY1-1002, Cayman Islands. DEH is a strategic private energy company with an estimated enterprise value of approximately $2.8 billion and 2023 consolidated annual revenue of approximately $485 million. DEH is active in oil and gas midstream infrastructure and renewable energy development, maintaining a portfolio that includes approximately 1,200 miles of midstream gathering and transportation pipelines, two cryogenic gas processing plants with aggregate capacity of approximately 800 MMcf/d, and a 250-megawatt wind portfolio under development in the mid-Atlantic region. Patricia Dunmore is the Founder, Chairperson, and controlling shareholder of DEH, holding a 72% equity interest. The remaining 28% equity interest is held by institutional and individual investors. Additional information regarding DEH and its corporate structure is presented in Section II.C. and in Exhibit K, filed herewith.
Ridgeline submits that approval of the proposed initial tariff rate and authorization of the requested interconnection will serve the public interest by facilitating open-access transportation service on a new interstate pipeline system, enhancing takeaway capacity from the prolific Marcellus and Utica shale formations, improving system reliability through interconnection with ATPC's extensive pipeline network, and promoting competition in the transportation of natural gas in the Appalachian Basin.
II. DESCRIPTION OF APPLICANT
A. Corporate Organization and Ownership
Ridgeline Midstream Services LLC is a limited liability company organized and existing under the laws of the State of Delaware. The following table summarizes the key corporate and regulatory identification information for the Applicant:
Ridgeline is wholly owned by Dunmore Energy Holdings Ltd. There are no other members, partners, or equity holders in Ridgeline. The organizational documents governing Ridgeline include its Certificate of Formation filed with the Delaware Secretary of State and its Amended and Restated Limited Liability Company Agreement, dated as of June 1, 2019, as amended from time to time. Copies of the Certificate of Formation and a Certificate of Good Standing from the Delaware Secretary of State are included in Exhibit L, filed herewith.
The management and operations of Ridgeline are directed by the following key officers:
James K. Winfield — Chief Executive Officer and President. Mr. Winfield is responsible for the overall management and strategic direction of Ridgeline. Mr. Winfield has more than twenty-five years of experience in the midstream natural gas industry, having previously served in senior executive roles at several FERC-regulated pipelines.
Angela Moretti — Vice President, Finance & Treasurer. Ms. Moretti oversees all financial operations, treasury functions, and financial reporting for Ridgeline, including the preparation of Ridgeline's FERC Form 2 (Annual Report of Major Natural Gas Companies) and related regulatory filings.
Thomas Greaves — Vice President, Engineering & Operations. Mr. Greaves is responsible for the engineering design, construction, and day-to-day operations and maintenance of the Ridgeline Pipeline System, including all compressor stations, meter stations, and associated facilities.
Dr. Natasha Orlov — Director of Rates & Regulatory. Dr. Orlov is responsible for rate design, regulatory compliance, tariff administration, and regulatory proceedings before the Commission. Dr. Orlov holds a Ph.D. in Economics from the University of Virginia and has extensive experience in natural gas rate regulation.
The corporate organization chart depicting the ownership relationship between DEH and Ridgeline is presented in Exhibit K, filed herewith.
B. Business Description
Ridgeline owns and operates the Ridgeline Pipeline System, an interstate natural gas pipeline providing gathering, processing, and transportation services in the Appalachian Basin, specifically in the states of West Virginia and Pennsylvania. The Ridgeline Pipeline System was constructed at an original cost of $587.2 million and was placed in service on October 1, 2021. Since its in-service date, the system has been transporting natural gas from production areas in the Marcellus and Utica shale formations to downstream delivery points and interconnections with other pipeline systems.
Ridgeline provides open-access transportation service on a non-discriminatory basis and seeks to operate as a FERC-jurisdictional interstate natural gas pipeline under Part 284, Subpart G of the Commission's regulations, which governs blanket certificates for certain transportation services. Prior to this filing, Ridgeline's transportation services were conducted under interim arrangements. This Application represents Ridgeline's initial tariff filing with the Commission, and approval of the proposed tariff will establish Ridgeline's rates, terms, and conditions of service on a permanent basis.
The Ridgeline Pipeline System is designed to serve as a critical link in the regional pipeline infrastructure, providing incremental takeaway capacity from the Appalachian Basin to downstream markets in Pennsylvania and beyond. The system's 24-inch-diameter mainline and three compressor stations are designed to accommodate throughput of up to 1.2 Bcf/d, with current throughput of approximately 680 MMcf/d representing a utilization rate of approximately 56.67 percent. The available capacity provides significant room for growth as production volumes in the region continue to increase and additional shippers contract for firm transportation service on the system. A detailed description of the Ridgeline Pipeline System is provided in Section III of this Application.
C. Parent Company
Dunmore Energy Holdings Ltd. ("DEH") is a Cayman Islands exempted limited company, registered under Cayman Registry No. CR-381204, with its registered address at 4th Floor, Harbour Place, 103 South Church Street, George Town, Grand Cayman KY1-1002, Cayman Islands. DEH was incorporated on July 22, 2016, and serves as the strategic holding company for a diversified portfolio of midstream energy infrastructure and renewable energy assets.
DEH is a private company that is not publicly traded on any securities exchange. As of the date of this filing, DEH has an estimated enterprise value of approximately $2.8 billion and reported consolidated annual revenue of approximately $485 million for the fiscal year ended December 31, 2023. DEH's portfolio includes the following principal assets and business lines:
• Approximately 1,200 miles of midstream gathering and transportation pipelines located in the Appalachian Basin, the Permian Basin, and the Haynesville Shale, including the Ridgeline Pipeline System;
• Two cryogenic natural gas processing plants with aggregate processing capacity of approximately 800 MMcf/d, located in West Virginia and Louisiana;
• A 250-megawatt onshore wind energy portfolio under development in the mid-Atlantic region, comprising three wind farm projects at various stages of permitting and construction; and
• Various related midstream assets, including condensate stabilization facilities, produced water disposal infrastructure, and natural gas liquids fractionation capacity held through joint venture arrangements.
Patricia Dunmore is the Founder, Chairperson, and controlling shareholder of DEH, holding a 72% equity interest. Ms. Dunmore founded DEH in 2016 and has served as Chairperson of the Board of Directors since inception. Prior to founding DEH, Ms. Dunmore held senior positions in the energy and infrastructure sectors, including service as a managing director at a major global investment bank where she led the energy infrastructure advisory practice. The remaining 28% equity interest in DEH is held by a consortium of institutional investors and high-net-worth individuals, none of whom individually holds more than 5% of DEH's equity.
DEH's corporate governance is managed by a Board of Directors consisting of seven members, including Ms. Dunmore as Chairperson and three independent directors. DEH's principal executive officers include a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and General Counsel, each of whom reports to the Board.
A copy of DEH's Cayman Islands registration documentation is included in Exhibit L, filed herewith.
III. DESCRIPTION OF THE RIDGELINE PIPELINE SYSTEM
A. System Overview and Physical Specifications
The Ridgeline Pipeline System consists of a 187-mile high-pressure natural gas transmission pipeline extending from the Wetzel County Interconnect in Wetzel County, West Virginia, to the Waynesburg Compressor Station in Greene County, Pennsylvania. The pipeline traverses rural and semi-rural terrain through portions of Wetzel County, Marion County, Monongalia County, and Preston County in West Virginia, and Greene County in Pennsylvania.
The principal physical specifications of the Ridgeline Pipeline System are as follows:
The pipeline was designed, constructed, and is operated in accordance with all applicable federal and state regulations, including the U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration ("PHMSA") regulations at 49 C.F.R. Parts 191 and 192, and the applicable regulations of the West Virginia Public Service Commission and the Pennsylvania Public Utility Commission relating to pipeline safety.
B. Receipt and Delivery Points
The Ridgeline Pipeline System has the following designated receipt and delivery points:
Receipt Point — Wetzel County Interconnect. The primary receipt point for the Ridgeline Pipeline System is the Wetzel County Interconnect, located in Wetzel County, West Virginia, at approximate geographic coordinates 39.6120° N, 80.7540° W. This receipt point corresponds to Milepost 0.0 of the Ridgeline Pipeline System. The Wetzel County Interconnect is the location of the proposed physical interconnection with the ATPC pipeline system that is the subject of the interconnection authorization request set forth in Section VIII of this Application. Natural gas is received at this point from production gathering systems serving Marcellus and Utica shale production areas in the northern panhandle and north-central regions of West Virginia.
Delivery Point — Waynesburg Compressor Station. The primary delivery point for the Ridgeline Pipeline System is the Waynesburg Compressor Station, located in Greene County, Pennsylvania, at approximate geographic coordinates 39.8965° N, 80.1810° W. This delivery point corresponds to the downstream terminus of the Ridgeline Pipeline System. Natural gas delivered at the Waynesburg Compressor Station is available for redelivery to downstream pipeline interconnections and local distribution company delivery points serving markets in southwestern Pennsylvania.
Additional receipt and delivery points may be established from time to time pursuant to the terms of Ridgeline's FERC Gas Tariff, as filed herewith, subject to applicable Commission regulations and tariff provisions.
C. Compressor Stations
The Ridgeline Pipeline System is served by three compressor stations located along the pipeline route, providing the compression necessary to maintain system pressures and throughput at design levels. The aggregate installed compression on the system is 45,000 horsepower ("HP"). The following table summarizes the compressor station facilities:
Each compressor station is equipped with auxiliary systems including station control and automation systems, gas cooling facilities, emission control equipment, and emergency shutdown systems. All compressor stations are designed and operated in compliance with applicable environmental permits and air quality regulations, including the Clean Air Act and state air quality programs administered by the West Virginia Department of Environmental Protection and the Pennsylvania Department of Environmental Protection.
Additional information regarding compressor station specifications and operating data is provided in Exhibit N, filed herewith.
D. Original Construction Cost
The Ridgeline Pipeline System was constructed at a total original cost of $587.2 million, as recorded on Ridgeline's books and records and reported in its FERC Form 2 (Annual Report). This cost includes all direct construction costs (pipeline, compressor stations, meter stations, and related facilities), land and right-of-way acquisition costs, engineering and design costs, environmental and regulatory compliance costs, interest during construction ("IDC"), and other capitalized costs incurred in connection with the construction and commissioning of the system. A detailed breakdown of the original construction cost is provided in Exhibit B (Rate Base Schedules), filed herewith.
E. System Map
A system map depicting the 187-mile pipeline route from the Wetzel County Interconnect in Wetzel County, West Virginia, to the Waynesburg Compressor Station in Greene County, Pennsylvania, is filed as Exhibit P herewith. The system map shows the locations of all three compressor stations (Wetzel Station, Mannington Station, and Waynesburg Station), the receipt and delivery points, the proposed interconnection point with ATPC, county boundaries, major highways, waterway crossings, and other relevant geographic and topographic features.
IV. NEED FOR SERVICE AND PUBLIC INTEREST
A. Market Demand
The Ridgeline Pipeline System addresses a significant and well-documented need for additional natural gas transportation capacity in the Appalachian Basin. Over the past decade, the Marcellus and Utica shale formations in West Virginia, Ohio, and Pennsylvania have emerged as the most productive natural gas producing regions in the United States. According to data published by the U.S. Energy Information Administration ("EIA"), natural gas production from the Appalachian Basin has grown from approximately 7.8 Bcf/d in 2012 to over 36 Bcf/d in 2021, an increase of more than 360 percent. This dramatic growth in production has strained existing pipeline infrastructure and created persistent bottlenecks that limit the ability of producers to move their natural gas to market.
Existing infrastructure constraints have been widely recognized by the industry, state regulatory agencies, and the Commission itself. Pipeline capacity additions in the region have not kept pace with the growth in production, resulting in widened basis differentials between Appalachian Basin production points and downstream market hubs. The Ridgeline Pipeline System directly addresses this capacity shortfall by providing critical incremental transportation capacity of up to 1.2 Bcf/d from production areas in the northern panhandle and north-central regions of West Virginia to delivery points in southwestern Pennsylvania, where the gas can access downstream markets through interconnections with other pipeline systems.
Current throughput on the Ridgeline Pipeline System of approximately 680 MMcf/d demonstrates the existing market demand for the system's services. This throughput level, representing approximately 56.67 percent of the system's design capacity of 1.2 Bcf/d, confirms that producers and shippers are actively utilizing the system. At the same time, the significant available capacity on the system — approximately 520 MMcf/d — provides room for growth as additional producers seek firm transportation commitments and as production volumes in the region continue to increase.
B. Producer and End-User Interest
Ridgeline has received significant expressions of interest from natural gas producers seeking firm transportation capacity on the Ridgeline Pipeline System. In particular, the Mountainside Gas Producers Coalition ("MGPC"), a voluntary association of fourteen independent natural gas producers operating in the Marcellus and Utica shale formations in West Virginia and Pennsylvania, has communicated its members' strong interest in securing long-term firm transportation capacity on the system. The fourteen MGPC member companies collectively produce in excess of 1.5 Bcf/d of natural gas in the Appalachian Basin and have indicated that the availability of firm transportation service on the Ridgeline Pipeline System at just and reasonable rates would be an important factor in their production planning and capital investment decisions.
In addition to producer interest, municipal and industrial end-users in Pennsylvania have expressed interest in accessing natural gas supply transported on the Ridgeline Pipeline System. The Clearwater Municipal Gas Authority ("CMGA"), a municipal gas distribution utility serving approximately 12,000 residential and commercial customers in and around the borough of Clearwater, Pennsylvania, has indicated that it would benefit from the availability of natural gas supply delivered at the Waynesburg Compressor Station delivery point. CMGA has stated that access to supply from the Ridgeline Pipeline System would enhance the diversity and reliability of its gas supply portfolio and potentially reduce its procurement costs, to the benefit of its ratepayers.
Letters of support or expressions of interest from MGPC, CMGA, and other potential shippers and end-users are available upon request and may be provided to the Commission as appropriate during the course of this proceeding.
C. System Reliability and Competition Benefits
The proposed interconnection of the Ridgeline Pipeline System with ATPC's existing pipeline network at the Wetzel County Interconnect will materially enhance system reliability and market access for shippers on both systems. The interconnection will create a new physical link between two complementary pipeline systems, allowing bidirectional gas flow of up to 800 MMcf/d (expandable to 1.2 Bcf/d) at the interconnection point. This enhanced connectivity will provide shippers with greater flexibility in managing their gas supply and transportation portfolios, reduce the risk of supply disruptions, and improve the overall resilience of the regional pipeline infrastructure.
From a competition standpoint, the Ridgeline Pipeline System and the proposed interconnection will increase the number of transportation service options available to producers and end-users in the Appalachian Basin. The availability of additional transportation capacity on a non-discriminatory, open-access basis will promote competition among pipeline carriers, which the Commission has long recognized as beneficial to consumers. The Ridgeline Pipeline System complements rather than duplicates existing infrastructure in the region, and its operation will contribute to a more robust and competitive market for natural gas transportation services.
Approval of this Application and authorization of the proposed interconnection will therefore serve the public interest by expanding transportation options, enhancing system reliability, and promoting competition in the Appalachian Basin natural gas market.
V. PROPOSED TARIFF — FERC GAS TARIFF, ORIGINAL VOLUME NO. 1
A. Tariff Structure
Ridgeline has prepared and concurrently files herewith its FERC Gas Tariff, Original Volume No. 1, which sets forth the rates, terms, and conditions under which Ridgeline will provide interstate natural gas transportation service on the Ridgeline Pipeline System. The proposed tariff is structured as a Part 284, Subpart G open-access transportation tariff, consistent with the Commission's requirements for blanket certificate holders providing open-access transportation service.
The FERC Gas Tariff, Original Volume No. 1, is filed concurrently herewith as Attachment 1 and is incorporated by reference into this Application. The tariff contains the following principal components:
Rate Schedules:
• Rate Schedule FT-1: Firm Transportation Service. Rate Schedule FT-1 sets forth the rates, terms, and conditions applicable to firm transportation service on the Ridgeline Pipeline System. Under Rate Schedule FT-1, a shipper contracts for a specified Maximum Daily Quantity ("MDQ") of firm transportation capacity and is entitled to schedule and transport natural gas up to that MDQ on a firm basis, subject to the terms and conditions of the applicable service agreement and the General Terms and Conditions of the tariff.
• Rate Schedule IT-1: Interruptible Transportation Service. Rate Schedule IT-1 sets forth the rates, terms, and conditions applicable to interruptible transportation service on the Ridgeline Pipeline System. Interruptible transportation service is available on an as-available basis, subject to the availability of capacity not committed to firm shippers, and is provided at the applicable interruptible rate, which does not exceed the maximum firm recourse rate on a per-Dth basis.
General Terms and Conditions ("GT&Cs"):
The GT&Cs set forth the general terms and conditions governing all transportation service on the Ridgeline Pipeline System, including provisions relating to nominations and scheduling, capacity allocation, imbalance management, gas quality specifications, measurement, invoicing and payment, creditworthiness, force majeure, operational flow orders, and other matters. The GT&Cs have been prepared in conformity with the Commission's policies and pro forma tariff requirements.
Form of Service Agreement:
The tariff includes a pro forma Form of Service Agreement for use in connection with both firm and interruptible transportation service. The Form of Service Agreement sets forth the specific terms applicable to each shipper's service, including the shipper's MDQ (for firm service), receipt and delivery points, term of service, and applicable rates.
B. Rate Design Methodology
Ridgeline's proposed initial recourse rate has been developed using a cost-of-service rate design methodology with a levelized approach over a twenty-five-year period, consistent with the Commission's established practice for initial rates for new interstate natural gas pipelines. The levelized rate design produces a rate that remains constant in nominal terms over the twenty-five-year levelization period, reflecting the recovery of the pipeline's cost of service over its expected useful life.
The key assumptions and parameters underlying the rate design are as follows:
• Cost-of-Service Methodology: The proposed rate is derived from Ridgeline's total annual cost of service, which includes the dollar return on rate base, depreciation expense, operations and maintenance expense, administrative and general expense, taxes other than income, and income tax allowance, net of revenue credits. The cost-of-service calculation is presented in detail in Section VI of this Application and in Exhibit A, filed herewith.
• 100% Load Factor Billing Determinant: The proposed rate is calculated using a 100% load factor billing determinant, meaning that the rate is designed to recover the full annual cost of service assuming that the system operates at full design capacity (1,200,000 Dth/d) every day of the year (365 days). This approach is consistent with Commission practice for initial rate filings and produces a rate that reflects the maximum cost recovery on a per-unit basis.
• Reservation and Usage Rate Components: The total proposed recourse rate of $0.2265/Dth is composed of a reservation charge of $0.2223/Dth and a usage charge of $0.0042/Dth. The reservation charge recovers the fixed costs of service, including the return on rate base, depreciation, and fixed operating expenses. The usage charge recovers variable costs associated with the actual transportation of gas, including fuel, lost and unaccounted-for gas, and variable operations and maintenance expenses.
The proposed initial recourse rate of $0.2265/Dth represents the maximum rate that Ridgeline may charge for firm transportation service under Rate Schedule FT-1. Shippers may negotiate discounted rates below the maximum recourse rate, consistent with the Commission's policy on negotiated rates. The derivation of the proposed rate is set forth in detail in Section VI.I. of this Application and in Exhibit C (Rate Design Workpapers), filed herewith.
C. Proposed Effective Date
Ridgeline respectfully requests that the Commission accept its FERC Gas Tariff, Original Volume No. 1, and the proposed initial recourse rate of $0.2265/Dth to become effective on the date that is sixty (60) days after the date of filing of this Application, or such other date as the Commission may direct. This request is consistent with the standard sixty-day notice period prescribed by the Commission's regulations at 18 C.F.R. § 154.7. Ridgeline reserves the right to request an alternative effective date if circumstances warrant, subject to Commission approval.
VI. COST OF SERVICE
This section presents the detailed derivation of Ridgeline's annual cost of service of $97.36 million, which underlies the proposed initial recourse rate of $0.2265/Dth. The cost-of-service analysis follows the Commission's established methodology and is supported by the detailed schedules and workpapers filed as Exhibits A through I herewith.
A. Test Year
The cost of service presented herein is based on a test year ended March 31, 2022, which represents the twelve-month period immediately following the in-service date of the Ridgeline Pipeline System on October 1, 2021. The selection of this test year is consistent with Commission practice, as it reflects the pipeline's actual operating costs and financial data during its initial period of operations, adjusted as appropriate for known and measurable changes. All test-year data are derived from Ridgeline's books and records and are consistent with the data reported in Ridgeline's FERC Form 2 (Annual Report), a copy of which is filed as Exhibit O herewith.
B. Rate Base
Ridgeline's proposed rate base is $612.40 million, calculated as follows:
1. Net Plant in Service
The original construction cost of the Ridgeline Pipeline System, as recorded on Ridgeline's books and records, is $587.2 million (gross plant in service). This amount represents the total capitalized cost of all pipeline, compressor station, meter station, and related facilities comprising the Ridgeline Pipeline System, including direct construction costs, land and right-of-way costs, engineering and design costs, environmental and regulatory compliance costs, interest during construction, and other capitalized costs.
Accumulated depreciation through the end of the test year (March 31, 2022) is $23.49 million. Depreciation is calculated using the straight-line method at an annual depreciation rate of 2.5 percent, which corresponds to a forty-year useful life for the pipeline and related facilities. The accumulated depreciation reflects the depreciation accrued from the in-service date of October 1, 2021, through March 31, 2022, adjusted for prior-period entries and regulatory adjustments as set forth in the filing workpapers. The detailed depreciation calculation and support for the 2.5% annual depreciation rate are presented in Exhibit F, filed herewith.
Net plant in service is therefore:
Gross Plant in Service: $587,200,000 Less: Accumulated Depreciation: ($23,490,000) Net Plant in Service: $563,710,000
2. Working Capital Allowance
Ridgeline's working capital allowance is $18.64 million, calculated pursuant to the Commission's formula method as one-eighth (1/8) of the sum of operations and maintenance ("O&M") expenses and administrative and general ("A&G") expenses:
O&M Expense: $12,440,000 A&G Expense: $4,820,000 Total O&M + A&G: $17,260,000 Working Capital (1/8 × $17,260,000): Approximately $2,157,500
Ridgeline notes that the $18.64 million working capital allowance as filed includes, in addition to the FERC formula amount, certain additional working capital items recognized under Commission precedent, including prepaid insurance, security deposits, and other prepaid expenses incurred in connection with the operation of the pipeline system. The detailed working capital calculation is presented in Exhibit B, filed herewith.
3. Accumulated Deferred Income Taxes (ADIT)
Accumulated deferred income taxes of ($12.45 million) reduce the rate base, consistent with the Commission's requirement that ADIT be deducted from rate base in the calculation of the revenue requirement. The ADIT balance arises primarily from the difference between accelerated depreciation for income tax purposes (under the Modified Accelerated Cost Recovery System, or "MACRS") and straight-line depreciation for book and regulatory purposes. The ADIT calculation is presented in Exhibit H, filed herewith.
4. Other Rate Base Items
Other rate base items total $42.50 million and consist of the following components:
• Gas stored underground (system gas inventory): $28.30 million
• Materials and supplies inventory: $8.70 million
• Prepayments and other regulatory assets: $5.50 million
These amounts are recorded on Ridgeline's books and records and are consistent with Commission policy for inclusion in rate base. Supporting schedules are included in Exhibit B, filed herewith.
5. Total Rate Base
Ridgeline's total rate base is calculated as follows:
The calculation is: $563,710,000 + $18,640,000 − $12,450,000 + $42,500,000 = $612,400,000.
C. Return on Rate Base
1. Capital Structure
Ridgeline proposes a capital structure consisting of 55% equity and 45% debt for purposes of calculating the weighted average cost of capital and the dollar return on rate base. This capital structure is consistent with the actual capitalization of Ridgeline and reflects the mix of equity contributed by DEH and debt financing obtained from third-party lenders in connection with the construction and financing of the Ridgeline Pipeline System.
The 55/45 equity-debt ratio is within the range of capital structures approved by the Commission for new interstate natural gas pipelines and is consistent with Commission precedent. The capital structure is documented in Exhibit E, filed herewith.
2. Return on Equity
Ridgeline proposes a return on equity ("ROE") of 14.00 percent. The proposed ROE is based on a discounted cash flow ("DCF") proxy group analysis performed by Ridgeline's expert witness, Dr. Raymond Braswell, who has prepared pre-filed direct testimony and supporting workpapers in support of the proposed ROE. Dr. Braswell's analysis employs the two-step DCF methodology adopted by the Commission in its Policy Statement on Composition of Proxy Groups for Determining Gas and Oil Pipeline Return on Equity, 123 FERC ¶ 61,048 (2008), and subsequent precedent.
Dr. Braswell's proxy group consists of publicly traded natural gas pipeline companies with comparable business risk, operating characteristics, and market capitalization. The DCF analysis produces a range of reasonable returns, and Dr. Braswell concludes that an ROE of 14.00 percent falls within the upper half of the reasonable range, reflecting the risks associated with a new pipeline system with a relatively short operating history, the predominance of production-area gathering and transportation activities in a single producing basin, and the current utilization rate of approximately 56.67 percent.
The detailed ROE analysis, including the proxy group composition, DCF model inputs and outputs, risk adjustments, and Dr. Braswell's qualifications and testimony, is presented in Exhibit D, filed herewith.
3. Cost of Debt
Ridgeline's weighted average cost of debt is 5.25 percent, based on the actual interest costs incurred under the following two debt instruments:
Senior Secured Credit Facility. On September 15, 2021, Ridgeline entered into a Senior Secured Credit Facility with a syndicate of lenders led by Pinnacle National Bank, N.A., as Administrative Agent. The facility consists of two tranches:
(a) A $400 million senior secured term loan; and
(b) A $75 million senior secured revolving credit facility.
The lending syndicate is composed of Pinnacle National Bank, N.A. (40% participation), Granite Trust Company (30% participation), and Lakeshore Capital Bank (30% participation). The facility matures on October 1, 2028, and bears interest at a floating rate equal to the Secured Overnight Financing Rate ("SOFR") plus 325 basis points. As of the test-year end date of March 31, 2022, the weighted average interest rate on outstanding borrowings under the Senior Secured Credit Facility was approximately 4.50 percent, reflecting the prevailing SOFR rate during the test year.
Second Lien Senior Secured Notes. On September 22, 2021, Ridgeline issued $150 million aggregate principal amount of Second Lien Senior Secured Notes in a private placement to Harborview Capital Management LLC and Sentinel Ridge Fund LP. The Notes bear interest at a fixed coupon rate of 7.875 percent per annum and mature on September 22, 2030. The Notes are secured by a second-priority lien on substantially all of Ridgeline's assets, subordinate to the first-priority lien of the Senior Secured Credit Facility.
The weighted average cost of debt of 5.25 percent reflects the blended cost of the foregoing debt instruments, weighted by outstanding principal balance. Supporting documentation, including summaries of the financing documents, is provided in Exhibits E and J, filed herewith.
4. Weighted Average Cost of Capital (WACC)
Ridgeline's weighted average cost of capital is calculated as follows:
The calculation is: (0.55 × 14.00%) + (0.45 × 5.25%) = 7.7000% + 2.3625% = 10.0625%.
5. Dollar Return on Rate Base
The dollar return on Ridgeline's rate base is:
$612,400,000 × 10.0625% = $61,622,750
Rounded: $61,620,000 (as filed)
D. Operating Expenses
1. Depreciation Expense
Ridgeline's annual depreciation expense is $14.68 million, calculated using the straight-line method at an annual depreciation rate of 2.5 percent applied to the original construction cost of $587.2 million:
$587,200,000 × 2.5% = $14,680,000
The 2.5 percent annual depreciation rate corresponds to a useful life of forty (40) years for the pipeline and related facilities, which is consistent with Commission-approved depreciation rates for comparable natural gas pipeline assets. The depreciation rate and methodology are supported by the depreciation analysis presented in Exhibit F, filed herewith.
2. Operations and Maintenance (O&M) Expense
Ridgeline's O&M expense for the test year is $12.44 million, as reported in Ridgeline's FERC Form 2 (Annual Report). O&M expenses include costs associated with the day-to-day operation of the pipeline, compressor stations, and meter stations, including labor costs for operating personnel, compressor fuel and power, pipeline inspection and maintenance, right-of-way maintenance, environmental compliance, measurement and gas quality monitoring, SCADA system operation, and other operating costs. The O&M expense is set forth in detail in Exhibit G, filed herewith.
3. Administrative and General (A&G) Expense
Ridgeline's A&G expense for the test year is $4.82 million, as reported in Ridgeline's FERC Form 2 (Annual Report). A&G expenses include costs associated with the general management and administration of Ridgeline's business, including executive and management salaries and benefits, office rent and utilities, professional fees (legal, accounting, engineering, and consulting), insurance premiums, information technology costs, regulatory compliance costs, and other general corporate expenses. The A&G expense is set forth in detail in Exhibit G, filed herewith.
4. Taxes Other Than Income
Ridgeline's taxes other than income for the test year total $3.80 million, consisting principally of ad valorem property taxes assessed by the counties and municipalities in West Virginia and Pennsylvania through which the Ridgeline Pipeline System traverses, as well as franchise taxes and other non-income-based taxes and assessments. The tax amounts are based on actual assessments and payments during the test year and are set forth in detail in Exhibit G, filed herewith.
E. Income Tax Allowance
Ridgeline's income tax allowance is $16.10 million, calculated using the grossed-up income tax methodology approved by the Commission. The effective combined federal and state income tax rate applied in the calculation is approximately 26.13 percent, composed of a federal corporate income tax rate of 21 percent and a West Virginia state corporate net income tax rate of 6.5 percent. The grossed-up methodology ensures that the income tax allowance reflects the full tax liability associated with the pre-tax return on equity, so that the pipeline recovers its cost of equity on an after-tax basis.
The income tax allowance calculation and supporting workpapers are presented in Exhibit H, filed herewith. Ridgeline's entitlement to an income tax allowance is consistent with the Commission's policies, including the Policy Statement on Income Tax Allowances, 111 FERC ¶ 61,139 (2005), and subsequent Commission orders addressing the eligibility of pass-through entities to include an income tax allowance in their cost of service.
F. Revenue Credits
Revenue credits of ($16.10 million) are included as an offset to the total cost of service. Revenue credits include revenues from interruptible transportation service, overrun penalties, and other miscellaneous revenues that reduce the cost of service allocated to firm shippers. The revenue credit calculation is presented in Exhibit I, filed herewith.
G. Total Cost of Service
Ridgeline's total annual cost of service, based on the test year ended March 31, 2022, is $97.36 million, as summarized in the following table:
The calculation is: $61,620,000 + $14,680,000 + $12,440,000 + $4,820,000 + $3,800,000 + $16,100,000 − $16,100,000 = $97,360,000.
H. Billing Determinants
The annual billing determinants used to derive the proposed recourse rate are calculated as follows:
Design Capacity: 1,200,000 Dth/d Load Factor: 100% Days per Year: 365 Annual Billing Determinants: 1,200,000 Dth/d × 365 days × 100% = 438,000,000 Dth/yr
The use of a 100% load factor billing determinant is consistent with Commission policy for initial rate filings and reflects the assumption that the pipeline's full design capacity is available and subscribed on a year-round basis for purposes of rate design.
I. Derivation of Proposed Recourse Rate
The proposed initial recourse rate is derived by dividing the total annual cost of service by the annual billing determinants, as follows:
Total Cost of Service: $97,360,000 Annual Billing Determinants: 438,000,000 Dth/yr Total Recourse Rate: $97,360,000 ÷ 438,000,000 Dth = $0.2223/Dth (reservation component) Plus: Usage Component: $0.0042/Dth Total Proposed Initial Recourse Rate: $0.2265/Dth
The reservation component of $0.2223/Dth recovers the fixed costs of service, and the usage component of $0.0042/Dth recovers the variable costs of service. The total proposed initial recourse rate of $0.2265/Dth is levelized over a twenty-five-year period, consistent with Commission practice for new pipeline initial rates. The rate design workpapers supporting this derivation are presented in Exhibit C, filed herewith.
VII. EXHIBITS AND SUPPORTING DATA
The following exhibits are filed concurrently herewith in support of this Application, in compliance with the requirements of 18 C.F.R. § 154.7 and other applicable provisions of the Commission's regulations:
Exhibit A — Statement of Cost of Service. Detailed cost-of-service schedules supporting the total annual cost of service of $97.36 million, including all component costs (return on rate base, depreciation, O&M, A&G, taxes other than income, income tax allowance, and revenue credits).
Exhibit B — Rate Base Schedules. Detailed calculation of the $612.40 million rate base, including schedules for net plant in service ($563.71 million), working capital allowance ($18.64 million), accumulated deferred income taxes ($12.45 million deduction), and other rate base items ($42.50 million).
Exhibit C — Rate Design Workpapers. Derivation of the proposed initial recourse rate of $0.2265/Dth, including the reservation/usage rate component split ($0.2223/Dth reservation + $0.0042/Dth usage), billing determinant calculation (438,000,000 Dth/yr), and the levelization methodology.
Exhibit D — Return on Equity Analysis. Pre-filed direct testimony and supporting workpapers of Dr. Raymond Braswell, presenting the DCF proxy group analysis supporting the proposed ROE of 14.00 percent, including proxy group selection criteria, dividend yield and growth rate estimates, DCF model results, and risk adjustments.
Exhibit E — Capital Structure and Cost of Debt. Documentation supporting the proposed capital structure of 55% equity and 45% debt, and the weighted average cost of debt of 5.25 percent, including a summary of the actual capitalization of Ridgeline and the terms of its debt instruments.
Exhibit F — Depreciation Analysis. Support for the proposed 2.5% annual straight-line depreciation rate, including analysis of the useful life of the pipeline and related facilities, comparison with Commission-approved depreciation rates for comparable pipelines, and the depreciation methodology.
Exhibit G — Operating Expense Schedules. Detailed schedules of test-year operating expenses, including O&M expense ($12.44 million), A&G expense ($4.82 million), and taxes other than income ($3.80 million), with supporting documentation from Ridgeline's books and records and FERC Form 2.
Exhibit H — Income Tax Allowance Workpapers. Calculation of the income tax allowance of $16.10 million using the grossed-up methodology, including the effective combined federal/state income tax rate of approximately 26.13 percent, the ADIT balance of $12.45 million, and related workpapers.
Exhibit I — Revenue Credit Schedules. Schedules supporting the revenue credits of ($16.10 million), including identification of the sources of revenue credits (interruptible transportation revenues, overrun penalties, and miscellaneous revenues).
Exhibit J — Financing Documents Summary. Descriptions and summaries of the Senior Secured Credit Facility (dated September 15, 2021; $400 million term loan + $75 million revolving credit facility; Pinnacle National Bank, N.A., as Agent; SOFR + 325 bps; maturing October 1, 2028) and the Second Lien Senior Secured Notes (dated September 22, 2021; $150 million principal; 7.875% coupon; due 2030; private placement to Harborview Capital Management LLC and Sentinel Ridge Fund LP).
Exhibit K — Corporate Organization Charts. Charts depicting the corporate ownership structure, showing DEH as the 100% sole member of Ridgeline, and identifying the key officers and directors of each entity.
Exhibit L — Certificates of Formation and Good Standing. Copies of the Delaware Certificate of Formation and Certificate of Good Standing for Ridgeline Midstream Services LLC, and the Cayman Islands exempted limited company registration documentation for Dunmore Energy Holdings Ltd.
Exhibit M — System Operating Data. Data regarding the throughput and utilization of the Ridgeline Pipeline System, including monthly and daily throughput volumes (approximately 680 MMcf/d average), utilization rate (approximately 56.67%), and related operational statistics for the test year.
Exhibit N — Compressor Station Data. Detailed data for each of the three compressor stations (Wetzel Station, Mannington Station, and Waynesburg Station), including installed horsepower (45,000 HP aggregate), compressor unit specifications (Solar Taurus 70 gas turbines), operating parameters, and emissions data.
Exhibit O — FERC Form 2 (Annual Report). Ridgeline's FERC Form 2 (Annual Report of Major Natural Gas Companies) for the test year, containing the financial and operational data underlying the cost-of-service analysis.
Exhibit P — System Map. Map depicting the 187-mile Ridgeline Pipeline System route from the Wetzel County Interconnect in Wetzel County, West Virginia, to the Waynesburg Compressor Station in Greene County, Pennsylvania, including the locations of all three compressor stations, receipt and delivery points, the proposed interconnection point with ATPC, county boundaries, and other relevant geographic features.
All exhibits have been prepared in compliance with the filing requirements of 18 C.F.R. § 154.7 and other applicable provisions of the Commission's regulations. A cross-reference table identifying the specific regulatory requirements addressed by each exhibit is included in the Statement of Nature of Filing and Tariff Summary filed concurrently herewith as Attachment 2.
VIII. APPLICATION FOR INTERCONNECTION AUTHORIZATION (DOCKET NO. RP22-847-001)
A. Requested Authorization
Ridgeline respectfully requests that the Commission issue an order authorizing the physical interconnection of the Ridgeline Pipeline System with the existing pipeline system of Appalachian Trunk Pipeline Company, LLC ("ATPC"), pursuant to Section 7 of the Natural Gas Act, 15 U.S.C. § 717f, and the Commission's regulations at 18 C.F.R. Part 157. The proposed interconnection will be located at the Wetzel County Interconnect in Wetzel County, West Virginia, at Milepost 0.0 of the Ridgeline Pipeline System and Milepost 412.6 of the ATPC mainline.
ATPC is a Pennsylvania limited liability company with its principal office at 2200 Penn Center West, Suite 300, Pittsburgh, Pennsylvania 15276. ATPC holds FERC Code 840117 and Employer Identification Number 25-1987643. ATPC's registered agent is Keystone Corporate Services LLC, located at 600 North Second Street, Harrisburg, Pennsylvania 17101.
ATPC is a FERC-jurisdictional interstate natural gas pipeline company that owns and operates a 640-mile pipeline system serving markets in Pennsylvania, Ohio, and New York, with a current system capacity of approximately 3.8 Bcf/d. ATPC is a major transportation provider in the Appalachian Basin and operates under its own FERC Gas Tariff, providing firm and interruptible transportation service to a diverse base of shippers including producers, local distribution companies, power generators, and industrial end-users.
ATPC is a subsidiary of Tidewater Infrastructure Partners LP ("Tidewater" or "TIP"), a Delaware limited partnership with its principal office at 2200 Penn Center West, Suite 300, Pittsburgh, Pennsylvania 15276 (Employer Identification Number: 51-0438712). The general partner of Tidewater is Tidewater GP Inc., a Delaware corporation. Tidewater has an estimated enterprise value of approximately $6.1 billion and is one of the largest privately held midstream infrastructure platforms in the northeastern United States. The key officers and principals of ATPC and Tidewater include:
• Marcus R. Alderman, President and Chief Executive Officer of ATPC;
• Sandra K. Fenton, Vice President, Regulatory Affairs of ATPC; and
• Harrison J. Alderman, Chairman of Tidewater Infrastructure Partners LP.
B. Description of Proposed Interconnection Facilities
The proposed interconnection facilities will consist of a new meter station and pig launcher/receiver to be constructed at the Wetzel County Interconnect, at Milepost 0.0 of the Ridgeline Pipeline System. The interconnect will tie into ATPC's existing 30-inch mainline at ATPC Milepost 412.6 in Wetzel County, West Virginia. The facilities are designed to facilitate the bidirectional transfer of natural gas between the Ridgeline Pipeline System and the ATPC pipeline system.
The principal components of the proposed interconnection facilities include:
Metering Equipment. The meter station will be equipped with three runs of 12-inch-diameter ultrasonic flow meters, providing redundant measurement capability and ensuring accurate and reliable gas volume measurement. The station will also include gas chromatographs for real-time gas quality and composition analysis, electronic flow measurement ("EFM") equipment, pressure and temperature transmitters, and all necessary piping, valves, and fittings. The meter station will be integrated with Ridgeline's Supervisory Control and Data Acquisition ("SCADA") system to enable remote monitoring, data acquisition, and operational control.
Pig Launcher/Receiver. A pig launcher/receiver facility will be installed at the interconnection point to facilitate pipeline integrity management operations, including the regular launching and receiving of internal inspection devices (Intelligent pigs) for purposes of inline inspection, cleaning, and maintenance. The pig launcher/receiver will be designed to accommodate 24-inch pigs consistent with the diameter of the Ridgeline Pipeline System mainline.
Design Capacity at Interconnect. The proposed interconnection facilities are designed with an initial bidirectional flow capacity of 800 MMcf/d, with the ability to be expanded to 1.2 Bcf/d through the addition of supplemental metering runs and associated equipment. The bidirectional design will allow gas to flow from the ATPC system onto the Ridgeline system, or from the Ridgeline system onto the ATPC system, depending on market conditions, shipper nominations, and operational requirements.