memo-interconnection-cost-allocation.docx

1016-00005 · Dunmore Energy Holdings · Interconnection Agreement

memo-interconnection-cost-allocation.docx DOCUMENT Finance & Banking

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CALDERWOOD & HARKNESS LLP 1601 K Street NW, Suite 900 Washington, DC 20006 Telephone: (202) 555-7200 Facsimile: (202) 555-7201

MEMORANDUM

TO: Patricia Dunmore, Founder & Chairperson, Dunmore Energy Holdings Ltd. James K. Winfield, CEO & President, Ridgeline Midstream Services LLC

FROM: George Trujillo, Responsible Partner, Energy & Infrastructure Practice Group Brett Callahan, Lead Associate, Energy & Infrastructure Practice Group

DATE: October 28, 2022

RE: Interconnection Cost Allocation Analysis — Wetzel County Interconnect Facilities (FERC Docket Nos. RP22-847-000 and RP22-847-001)

C&H Matter No.: 1016-00005

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I. Executive Summary

The purpose of this memorandum is to analyze the legal and economic basis for the proposed 34.1% (Ridgeline Midstream Services LLC) / 65.9% (Appalachian Trunk Pipeline Company, LLC) cost allocation of the $22.3 million Wetzel County Interconnect facilities, and to rebut ATPC's advocacy for a mechanical 50/50 split ($11.15 million each) as asserted in ATPC's August 15, 2022 protest filed in FERC Docket No. RP22-847-001.

On May 12, 2022, Ridgeline Midstream Services LLC ("Ridgeline"), a Delaware limited liability company and wholly owned subsidiary of Dunmore Energy Holdings Ltd. ("Dunmore"), filed an application with the Federal Energy Regulatory Commission ("FERC" or "the Commission") seeking approval of an initial tariff rate and physical interconnection authorization with Appalachian Trunk Pipeline Company, LLC ("ATPC") at the Wetzel County Interconnect. The application was docketed under Docket No. RP22-847-000 for the rate case and Docket No. RP22-847-001 for the interconnection proceeding. Calderwood & Harkness LLP was engaged contemporaneously with the filing to serve as lead litigation counsel.

ATPC, a Pennsylvania limited liability company and subsidiary of Tidewater Infrastructure Partners LP ("Tidewater"), protested the application on August 15, 2022, arguing that the proposed cost allocation improperly shifts approximately $14.7 million in interconnection facilities costs to ATPC's existing shippers — shippers who, according to ATPC, did not request and will not disproportionately benefit from the interconnection. ATPC's counsel, William Pratt, Senior Partner at Kellner, Royce & Dillard LLP, advanced a counterproposal for an equal 50/50 cost split ($11.15 million each) and further argued that Ridgeline's proposed metering station design was inadequate. Ridgeline filed its answer to ATPC's protest on October 17, 2022, preserving all arguments set forth in its original application and identifying additional grounds for rejecting ATPC's proposed allocation.

Bottom-Line Conclusion: Based on our comprehensive analysis of the engineering specifications, applicable FERC precedent, and the cost-causation principles that have governed interconnection cost allocation under the Natural Gas Act for decades, we conclude that the 34.1%/65.9% allocation is well-supported and should be maintained as Ridgeline's primary position in both the hearing proceeding and settlement negotiations. The proposed allocation is consistent with established FERC cost-causation principles, the guidance set forth in FERC Order No. 2004 and its progeny, and a detailed engineering-based analysis of which party's system benefits from and necessitates each component of the interconnection facilities. ATPC's proposed 50/50 split lacks factual foundation and legal support and would result in an unjust and unreasonable allocation under Sections 4 and 7 of the Natural Gas Act, 15 U.S.C. §§ 717c, 717f, by requiring Ridgeline's shippers to subsidize interconnection facilities costs that are driven primarily by ATPC's system specifications, operating parameters, and tariff requirements.

This memorandum is prepared in advance of the prehearing conference scheduled for November 14, 2022, to inform the legal team's litigation posture on interconnection cost allocation and to provide a framework for the settlement discussions before Settlement Judge Howard Margolis, scheduled to commence on November 30, 2022.

II. Background

A. The Ridgeline Pipeline System

Ridgeline Midstream Services LLC operates a 187-mile, 24-inch-diameter high-pressure natural gas pipeline extending from the Wetzel County Interconnect in Wetzel County, West Virginia (approximate coordinates: 39.6120° N, 80.7540° W) to the Waynesburg Compressor Station in Greene County, Pennsylvania (approximate coordinates: 39.8965° N, 80.1810° W). The pipeline was designed and constructed to provide open-access transportation service for natural gas produced in the Marcellus and Utica shale formations of the central Appalachian Basin.

The system has a design capacity of 1.2 Bcf/d (equivalent to 1,200,000 Dth/d at an assumed BTU content of 1,000 BTU/cf). Current throughput stands at approximately 680 MMcf/d, representing a utilization rate of approximately 56.67% of nameplate capacity. The system is currently ramping throughput as additional producer interconnections come online along the pipeline corridor.

Ridgeline's compression infrastructure consists of three compressor stations — the Wetzel Station, the Mannington Station, and the Waynesburg Station — with aggregate installed compression of 45,000 horsepower. These stations are strategically positioned along the pipeline corridor to maintain design pressures and flow rates throughout the system's operating range.

The Ridgeline pipeline system achieved its in-service date on October 1, 2021, following a construction period of approximately eighteen months. The original construction cost was $587.2 million, exclusive of the Wetzel County Interconnect facilities that are the subject of this analysis.

Ridgeline is organized as a Delaware limited liability company with a single member — Dunmore Energy Holdings Ltd. — which holds 100% of the membership interests. Ridgeline maintains its principal office at 700 Kanawha Boulevard East, Suite 1400, Charleston, West Virginia 25301. Its Delaware registered agent is Capitol Filings Inc., located at 1209 Orange Street, Wilmington, Delaware 19801. Ridgeline's FERC Code is 960442, and its Employer Identification Number is 87-4231956.

B. The ATPC System

Appalachian Trunk Pipeline Company, LLC is a FERC-jurisdictional interstate natural gas pipeline system consisting of approximately 640 miles of mainline and lateral pipeline serving markets in Pennsylvania, Ohio, and New York. ATPC's current system capacity is 3.8 Bcf/d, making it one of the larger interstate pipeline systems operating in the Appalachian region. ATPC's mainline traverses a north-south corridor through western Pennsylvania, with multiple interconnections to other interstate and intrastate pipeline systems, local distribution companies, and power generation facilities throughout its service territory.

ATPC is a Pennsylvania limited liability company and a wholly owned subsidiary of Tidewater Infrastructure Partners LP, a Delaware limited partnership. Tidewater's general partner is Tidewater GP Inc., and the partnership is controlled by the Alderman family. Harrison J. Alderman serves as Chairman, and Marcus R. Alderman serves as President and Chief Executive Officer. Tidewater's estimated enterprise value is approximately $6.1 billion, reflecting its diversified portfolio of midstream and infrastructure assets across the Appalachian Basin and the Mid-Atlantic region.

ATPC maintains its principal office at 2200 Penn Center West, Suite 300, Pittsburgh, Pennsylvania 15276. Its registered agent is Keystone Corporate Services LLC, located at 600 North Second Street, Harrisburg, Pennsylvania 17101. ATPC's FERC Code is 840117, and its Employer Identification Number is 25-1987643. Tidewater Infrastructure Partners LP's Employer Identification Number is 51-0438712. Sandra K. Fenton serves as ATPC's Vice President, Regulatory Affairs, and has been the primary point of contact for regulatory matters related to the interconnection.

C. The Proposed Interconnection

The proposed Wetzel County Interconnect is a new meter station and pig launcher/receiver to be located at milepost 0.0 of the Ridgeline system, tying into ATPC's existing 30-inch mainline at ATPC Milepost 412.6 in Wetzel County, West Virginia. The interconnect will establish a physical connection between the two pipeline systems, enabling the transportation of natural gas from the Marcellus and Utica shale production areas served by Ridgeline into ATPC's interstate trunk line for delivery to downstream markets.

The design capacity at the interconnect is 800 MMcf/d bidirectional, with provisions for expansion to 1.2 Bcf/d through the addition of supplemental metering runs and compression enhancements. The bidirectional design is intended to provide operational flexibility for both systems, allowing gas to flow from Ridgeline into ATPC or, under certain operational conditions, from ATPC into Ridgeline.

The key facilities comprising the Wetzel County Interconnect include:

• Ultrasonic flow meters (three runs, 12-inch diameter) for custody transfer measurement;

• Gas chromatographs for real-time gas quality measurement and analysis;

• SCADA integration equipment for remote monitoring, control, and data transmission;

• A pig launcher/receiver assembly for pipeline integrity management and inline inspection;

• Valving, piping, and associated mechanical connections between Ridgeline's 24-inch line and ATPC's 30-inch mainline;

• Pressure regulation and control equipment;

• Associated civil works, including site preparation, foundations, access roads, fencing, and drainage.

The total estimated cost of the interconnection facilities is $22.3 million, based on detailed engineering estimates prepared by Ridgeline's internal engineering team and reviewed by an independent third party. The original target in-service date for the interconnect was the fourth quarter of 2023; however, this date has been delayed pending resolution of the current proceeding before the Commission.

D. Proposed Cost Allocation (as Filed)

In its May 12, 2022 application, Ridgeline proposed the following cost allocation for the $22.3 million Wetzel County Interconnect facilities:

For convenience, the allocation is referred to throughout this memorandum as 34.1% (Ridgeline) / 65.9% (ATPC), and the dollar amounts are rounded to $7.6 million and $14.7 million, respectively.

The basis for this allocation is a component-level engineering analysis that identifies each discrete facility element comprising the interconnection, determines whether each component is "joint-use" or "sole-use," and allocates costs to the party whose system operations necessitate or primarily benefit from each component. This methodology is described in detail in Section IV of this memorandum and is supported by the engineering analysis prepared by Thomas Greaves, Vice President of Engineering & Operations at Ridgeline, and independently reviewed by Ridgepoint Appraisal & Valuation Inc.

E. ATPC's Position (Per August 15, 2022 Protest)

ATPC filed a protest and motion to intervene on August 15, 2022, in Docket No. RP22-847-001. In its protest, ATPC raised three principal objections to the proposed interconnection cost allocation:

First, ATPC argued that both parties benefit equally from the interconnection and that costs should therefore be split on an equal, 50/50 basis, resulting in each party bearing $11.15 million of the $22.3 million total.

Second, ATPC contended that Ridgeline's proposed metering station design is inadequate, failing to meet ATPC's tariff standards for custody transfer measurement, and that requiring ATPC to bear 65.9% of the costs for a facility that ATPC considers insufficiently designed would be unjust and unreasonable.

Third, ATPC argued that the proposed cost allocation methodology improperly shifts $14.7 million in facilities costs to ATPC's existing shippers — shippers who did not request the interconnection and who, in ATPC's view, should not be required to subsidize Ridgeline's market access.

ATPC's protest was filed by its counsel, William Pratt, Senior Partner, Kellner, Royce & Dillard LLP, One PPG Place, Suite 2800, Pittsburgh, Pennsylvania 15222.

Two additional parties have intervened in the proceeding. The Clearwater Municipal Gas Authority ("CMGA") filed an intervention on August 1, 2022. CMGA is a municipal gas distribution authority that receives transportation service on the ATPC system; its General Manager is Dennis Ott, and it is represented by Stephen Greer of Fordham Municipal Law Group PC, 312 Adams Avenue, Suite 100, Scranton, Pennsylvania 18503. CMGA has aligned itself with ATPC's cost allocation position, expressing concern that the allocation of $14.7 million to ATPC will ultimately be passed through to ATPC's captive customers, including CMGA, through increased rates.

The Mountainside Gas Producers Coalition ("MGPC") filed an intervention on July 28, 2022. MGPC is a trade association representing fourteen independent natural gas producers operating in the Marcellus and Utica shale formations. Its Executive Director is Calvin Dreyer, and it is represented by Rebekah Montague of Whitmore & Sable LLP, 1200 New Hampshire Avenue NW, Suite 600, Washington, DC 20036. MGPC generally supports the construction of the interconnection, recognizing its importance for producer access to interstate markets, but has taken no firm position on cost allocation.

F. Procedural Status

The procedural history of this matter is as follows:

• May 12, 2022: Ridgeline files its application for initial tariff rate and interconnection authorization, docketed as RP22-847-000 (rate case) and RP22-847-001 (interconnection). Calderwood & Harkness LLP engagement opened simultaneously under C&H Matter No. 1016-00005.

• June 14, 2022: FERC issues Notice of Filing and establishes an intervention deadline of August 15, 2022.

• July 28, 2022: Mountainside Gas Producers Coalition files a motion to intervene.

• August 1, 2022: Clearwater Municipal Gas Authority files a motion to intervene.

• August 15, 2022: ATPC files its protest and motion to intervene.

• September 22, 2022: FERC issues an order granting all interventions and setting the proceeding for hearing under a Track II procedural schedule. Settlement Judge Howard Margolis is appointed pursuant to Rule 603 of the Commission's Rules of Practice and Procedure, 18 C.F.R. § 385.603.

• October 17, 2022: Ridgeline files its answer to ATPC's protest.

• November 14, 2022 (upcoming): Administrative Law Judge Clara Whitfield to be appointed for the hearing proceeding; prehearing conference to be held.

• November 21, 2022 (anticipated): Statement of Issues due per the ALJ's prehearing conference order.

• November 30, 2022 (scheduled): First settlement conference before Settlement Judge Margolis.

• December 5, 2022 (anticipated): Filing of pre-filed direct testimony, including engineering testimony by Thomas Greaves and cost-of-service testimony by Angela Moretti.

This memorandum is prepared in advance of the prehearing conference to inform the legal team's litigation posture on interconnection cost allocation and to provide a comprehensive analytical foundation for both the hearing proceeding and settlement discussions.

III. Legal Framework for Interconnection Cost Allocation

A. Natural Gas Act Provisions

The allocation of interconnection facilities costs between Ridgeline and ATPC is governed by the Natural Gas Act ("NGA"), 15 U.S.C. § 717 et seq., and the Commission's implementing regulations. Three core provisions of the NGA bear directly on this analysis.

Section 4 (15 U.S.C. § 717c) requires that "[a]ll rates and charges made, demanded, or received by any natural-gas company for or in connection with the transportation or sale of natural gas subject to the jurisdiction of the Commission . . . shall be just and reasonable." The just and reasonable standard applies not only to transportation rates but also to the allocation of costs underlying those rates, including the allocation of interconnection facilities costs that will ultimately be reflected in each party's rate base and cost of service. Any allocation of costs that produces an unjust or unreasonable result — for instance, by requiring one party's ratepayers to subsidize facilities that are necessitated by and primarily benefit the other party's system — is impermissible under Section 4.

Section 5 (15 U.S.C. § 717d) empowers the Commission, upon its own motion or upon complaint, to investigate and determine whether existing rates or practices are unjust, unreasonable, unduly discriminatory, or preferential, and to fix just and reasonable rates. While Section 5 applies primarily to complaints against existing rates, its articulation of the unjust-and-unreasonable standard informs the Commission's review of proposed rate filings and cost allocations under Section 4.

Section 7 (15 U.S.C. § 717f) governs the authorization of pipeline construction and interconnections. Under Section 7, the Commission may attach conditions to the issuance of a certificate of public convenience and necessity, including conditions relating to the allocation of construction costs for interconnection facilities. The Commission's authority under Section 7 provides an independent basis for reviewing and approving (or modifying) the proposed cost allocation at the Wetzel County Interconnect.

The implementing regulations are found in three principal parts of Title 18 of the Code of Federal Regulations. Part 154 (18 C.F.R. Part 154) governs the filing of rates and tariffs by natural gas pipeline companies. Part 157 (18 C.F.R. Part 157) establishes the procedures and requirements for certificate applications, including applications for interconnection authorization. Part 284 (18 C.F.R. Part 284) implements the Commission's open-access transportation policies and establishes the framework for transportation service on interstate natural gas pipelines.

The Commission's long-standing policy, articulated across decades of ratemaking and certification proceedings, is that interconnection costs should be allocated on a cost-causation basis: costs should be borne by those who cause the costs to be incurred and who benefit from the facilities constructed. This principle is the cornerstone of NGA ratemaking and has been applied consistently by the Commission in interconnection proceedings involving both greenfield pipeline systems and expansions of existing systems.

B. FERC Order No. 2004 and Its Progeny

Order No. 2004, Standards of Conduct for Transmission Providers, 68 Fed. Reg. 69,134 (Dec. 11, 2003), FERC Stats. & Regs. ¶ 31,155 (2003), and its companion orders — Order No. 2004-A, 69 Fed. Reg. 23,562 (Apr. 29, 2004), and Order No. 2004-B, 69 Fed. Reg. 48,371 (Aug. 10, 2004) — primarily addressed the standards of conduct governing the relationship between transmission providers and their marketing affiliates. However, the Order No. 2004 proceeding also produced important guidance on the principles that govern physical interconnection facilities, the obligations of pipeline companies to provide non-discriminatory access to interconnection points, and the cost responsibility framework applicable to interconnecting pipelines.

In particular, the Commission's statements in Order No. 2004 and related proceedings reinforce the principle that the costs of interconnection facilities should be allocated based on cost causation, with attention to the specific engineering and operational requirements that each party's system imposes on the interconnection. The Commission has emphasized that interconnecting pipelines should bear costs proportionate to the facilities their systems necessitate, and that a blanket or mechanical allocation — such as an automatic 50/50 split — is inconsistent with cost-causation principles where the engineering evidence demonstrates that one party's system imposes disproportionate requirements on the interconnection facilities.

The Commission has consistently applied these principles in interconnection proceedings involving midstream and interstate pipeline systems. In multiple proceedings under NGA Section 7 and 18 C.F.R. Part 284, the Commission has examined the following factors in determining the appropriate cost allocation for physical interconnection facilities:

1. Benefit Analysis: Which party's customers will benefit from the interconnection, and in what proportion? Where one party's customers stand to benefit significantly more — for example, by gaining access to new supply sources or new markets — the Commission has assigned a greater share of interconnection costs to that party.

2. System-Specific Requirements: Which party's system requires the specific facilities in question? For example, where metering equipment must conform to one party's tariff measurement standards, or where pressure regulation equipment is necessitated by one party's operating pressure specifications, the Commission has allocated the costs of those components to the party whose system drives the design requirements.

3. Relative Design and Operational Demands: The relative design and operational demands each party places on the interconnection facilities. Where one party's system operates at a higher pressure, larger diameter, or more complex operational profile, the resulting incremental facility costs have been allocated to that party.

These principles have been applied in numerous Commission orders addressing interconnection facilities on Part 284 pipelines, and they provide the analytical framework within which Ridgeline's proposed 34.1%/65.9% allocation should be evaluated.

C. Cost-Causation Principles in FERC Jurisprudence

The cost-causation doctrine is one of the most deeply rooted principles in the Commission's ratemaking jurisprudence. As the Commission has articulated across a long line of decisions, the core of the cost-causation test is as follows: the entity whose system operations necessitate a particular facility component should bear the cost of that component. This principle ensures that ratepayers are not required to subsidize facilities that serve the needs of other parties' systems, and it promotes the efficient allocation of infrastructure costs across the natural gas transportation network.

A closely related corollary is the beneficiary-pays principle: where a particular facility or facility component provides disproportionate benefit to one party, that party should bear a proportionately greater share of the costs. The beneficiary-pays principle operates in tandem with the cost-causation test to ensure that both the cause and the benefit of interconnection facilities costs are considered in determining the appropriate allocation.

The Commission has repeatedly rejected mechanical 50/50 splits in circumstances where the engineering evidence demonstrates asymmetric cost causation. In such cases, the Commission has held that an equal split would produce an unjust and unreasonable result by requiring one party's ratepayers to cross-subsidize facilities that are necessitated by and primarily benefit the other party's system. The Commission's rejection of 50/50 splits is not categorical — an equal split may be appropriate where the evidence shows that both parties' systems impose roughly equal requirements on the interconnection facilities — but the Commission has made clear that the allocation must be driven by the evidence, not by a presumption of equality.

With respect to the burden of proof, the applicant bears the initial burden under NGA Section 4 to demonstrate that the proposed allocation is just and reasonable. Ridgeline bears this burden in the present proceeding and has met it through the detailed engineering analysis described in Section IV of this memorandum. However, a protesting party advocating an alternative allocation — in this case, ATPC's proposed 50/50 split — must present affirmative evidence supporting its position. It is not sufficient for the protestor to merely criticize the applicant's proposal; the protestor must demonstrate that its alternative allocation is consistent with cost-causation principles and would produce a just and reasonable result. As discussed in Section V below, ATPC has not met this burden.

D. Distinction Between Joint Facilities and Sole-Use Facilities

A critical analytical distinction in interconnection cost allocation proceedings is the distinction between joint-use facilities and sole-use facilities. The Commission has consistently recognized this distinction and has required that cost allocation methodologies properly categorize each facility component.

Joint-use facilities are those that serve the operational needs of both interconnecting pipelines and are necessary for the functioning of the interconnection regardless of which party's system specifications drive the design. Examples include basic site preparation, common-area civil works, and certain fundamental metering components that both parties require for custody transfer purposes. The costs of truly joint-use facilities are typically shared between the parties, either equally or on a weighted basis reflecting relative usage or benefit.

Sole-use facilities are those that are required solely or predominantly by one party's system and would not be necessary (or would not be designed to the same specifications) absent that party's particular system requirements. Examples include pressure regulation equipment necessitated by one party's operating pressure, enhanced metering capabilities required by one party's tariff provisions, and specialized piping or valve configurations driven by one party's mainline diameter or design specifications. The costs of sole-use facilities are allocated to the party that requires them.

The proper methodology for interconnection cost allocation therefore proceeds in three steps: (1) identify each discrete facility component comprising the interconnection; (2) determine whether each component is joint-use or sole-use, and if joint-use, determine the relative weighting; and (3) allocate the costs of each component accordingly. Where a component serves both parties but primarily benefits one party — a hybrid category between pure joint-use and pure sole-use — a weighted allocation based on relative benefit is appropriate.

This methodology has been applied in the present case to produce the 34.1%/65.9% allocation, as described in detail in Section IV.

IV. Engineering Analysis of Interconnection Facility Components

A. Overview of the $22.3 Million Cost Estimate

The total estimated cost of the Wetzel County Interconnect facilities is $22.3 million. This estimate was prepared by Thomas Greaves, Vice President of Engineering & Operations at Ridgeline Midstream Services LLC, based on detailed engineering specifications, vendor quotations, construction cost surveys, and historical cost data from comparable interconnection projects in the Appalachian Basin. The estimate was independently reviewed by Ridgepoint Appraisal & Valuation Inc. (5005 Woodway Drive, Suite 500, Houston, Texas 77056), an engineering consulting firm with extensive experience in the valuation and cost estimation of natural gas pipeline facilities.

The $22.3 million estimate encompasses all facility components necessary to establish a fully operational, bidirectional interconnection between Ridgeline's 24-inch pipeline at milepost 0.0 and ATPC's 30-inch mainline at ATPC Milepost 412.6. The estimate includes direct costs (materials, equipment, and labor), indirect costs (engineering, project management, and inspection), and appropriate contingency allowances consistent with industry standards for interconnection facility construction in the Appalachian region.

The following subsections present a component-by-component analysis of the $22.3 million cost estimate, identifying the engineering basis for the allocation of each component to Ridgeline, ATPC, or a shared allocation between the two parties.

B. Component-by-Component Analysis

1. Metering Facilities

The metering facilities at the Wetzel County Interconnect consist of three runs of 12-inch-diameter ultrasonic flow meters, gas chromatographs for continuous gas quality measurement and analysis, and associated electronic flow measurement equipment. These facilities are essential for custody transfer measurement — the precise quantification and quality determination of natural gas flowing between the Ridgeline and ATPC systems.

The estimated cost of the metering facilities is approximately $8.2 million, representing the single largest component of the $22.3 million interconnection cost estimate. This cost includes the ultrasonic flow meters themselves, the gas chromatograph units, the electronic flow measurement computers, the meter tube assemblies, and associated instrumentation, wiring, and commissioning costs.

Engineering Analysis: Metering at the interconnect is required by both parties for custody transfer purposes. However, the design specifications for the metering facilities — specifically, the requirement for three runs of 12-inch ultrasonic meters with gas chromatography capability — are driven primarily by ATPC's existing system requirements. ATPC's tariff, on file with the Commission, specifies detailed measurement accuracy standards for custody transfer points on its mainline, including requirements for redundant metering runs, specific accuracy tolerances, and continuous gas quality monitoring via gas chromatography. These tariff provisions reflect ATPC's operational practices at its existing interconnections along its 640-mile system and impose more stringent measurement requirements than would be necessary for Ridgeline's system alone.

If the interconnection were designed solely to meet Ridgeline's measurement requirements, a two-run metering installation with standard gas analysis equipment would be sufficient, at an estimated cost of approximately $4.9 million. The incremental cost of approximately $3.3 million attributable to the third metering run, the enhanced gas chromatograph specifications, and the additional electronic flow measurement redundancy required by ATPC's tariff is properly allocated to ATPC under cost-causation principles.

Allocation: Of the $8.2 million in metering facility costs, approximately $2.7 million is allocated to Ridgeline (reflecting Ridgeline's proportionate share of the base metering infrastructure that both parties require) and approximately $5.5 million is allocated to ATPC (reflecting the incremental metering complexity and redundancy necessitated by ATPC's tariff measurement standards and custody transfer protocols).

2. Pig Launcher/Receiver

The pig launcher/receiver assembly is located at milepost 0.0 of the Ridgeline system and is designed to facilitate pipeline integrity management and inline inspection activities. The facility enables the launching and receiving of pipeline inspection tools ("pigs"), including smart pigs equipped with magnetic flux leakage and caliper technologies for detecting corrosion, dents, and other anomalies in the pipeline wall.

The estimated cost of the pig launcher/receiver assembly, including associated valving, piping, and controls, is approximately $3.1 million.

Engineering Analysis: The pig launcher/receiver is located on the Ridgeline side of the interconnection and serves primarily Ridgeline's pipeline integrity management obligations under the Pipeline and Hazardous Materials Safety Administration ("PHMSA") integrity management regulations (49 C.F.R. Part 192, Subpart O) and Ridgeline's own integrity management plan. However, the bidirectional design of the interconnection means that the pig launcher/receiver also facilitates bi-directional pig runs that may benefit ATPC's mainline integrity inspections at the interconnection point. ATPC has indicated in prior engineering discussions that it may utilize the pig launcher/receiver for inspection activities on its adjacent mainline segment in the vicinity of ATPC Milepost 412.6.

Allocation: Approximately $2.5 million of the pig launcher/receiver costs is allocated to Ridgeline, reflecting its primary use for Ridgeline's pipeline integrity program. Approximately $0.6 million is allocated to ATPC, reflecting the facility's secondary benefit to ATPC's mainline integrity inspections and the bidirectional pig run capability that serves ATPC's operational needs.

3. Valving, Piping, and Civil Works

The valving, piping, and civil works component encompasses the isolation valves, block valves, check valves, and associated piping connections between Ridgeline's 24-inch pipeline and ATPC's 30-inch mainline. This component also includes all civil works necessary for the interconnect site, including site preparation, grading, concrete foundations for equipment, access road construction and paving, perimeter fencing, stormwater drainage, erosion controls, and environmental mitigation measures.

The estimated cost of valving, piping, and civil works is approximately $6.4 million.

Engineering Analysis: The diameter transition from Ridgeline's 24-inch pipeline to ATPC's 30-inch mainline requires specialized transition fittings, reducers, and valve configurations that are more complex and costly than would be necessary if both systems operated at the same diameter. The need for 30-inch-class valves and fittings on the ATPC side of the interconnection, as well as the transition piping from 24-inch to 30-inch, is driven by ATPC's larger mainline diameter. If both systems were 24-inch, the valving and piping costs would be reduced by an estimated $1.8 million.

The civil works, by contrast, are generally attributable to both parties in roughly equal measure, as the site preparation, foundations, and access roads serve the entire interconnect facility regardless of which party's system specifications drive the equipment design.

Allocation: Of the $6.4 million in valving, piping, and civil works costs, approximately $1.7 million is allocated to Ridgeline (reflecting Ridgeline-side valving, piping, and Ridgeline's proportionate share of civil works) and approximately $4.7 million is allocated to ATPC (reflecting the 30-inch-class valving and fittings, the diameter transition piping, and ATPC's proportionate share of civil works). The ATPC allocation is driven primarily by the cost differential attributable to ATPC's larger mainline diameter.

4. Pressure Regulation and Control Equipment

The pressure regulation and control equipment at the Wetzel County Interconnect is designed to manage the differential between Ridgeline's operating pressure and ATPC's mainline operating pressure. This equipment includes pressure regulators, relief valves, pressure transmitters, and associated control systems necessary to ensure safe and reliable gas flow across the interconnection at varying operating conditions.

The estimated cost of the pressure regulation and control equipment is approximately $2.8 million.

Engineering Analysis: Ridgeline's pipeline system operates at a maximum allowable operating pressure ("MAOP") of 1,440 psig, consistent with its 24-inch-diameter, X-70 grade steel pipe and design specifications. ATPC's mainline in the vicinity of Milepost 412.6 operates at a MAOP of 1,200 psig, reflecting ATPC's system design and operational parameters. The 240 psig differential between the two systems' operating pressures requires the installation of pressure regulation equipment at the interconnect to step down pressure from Ridgeline's higher operating pressure to a level compatible with ATPC's mainline.

This pressure regulation requirement is driven by ATPC's system configuration. If ATPC's mainline operated at the same pressure as Ridgeline's system, pressure regulation equipment would not be necessary at the interconnect, and the $2.8 million cost would be avoided entirely. Accordingly, the full cost of the pressure regulation and control equipment is properly attributable to ATPC's system under cost-causation principles.

Allocation: The entire $2.8 million in pressure regulation and control equipment costs is allocated to ATPC.

5. Communication and SCADA Integration

The communication and SCADA (Supervisory Control and Data Acquisition) integration component encompasses the SCADA equipment, telemetry hardware, communication infrastructure (including fiber optic and microwave communication links), and software integration necessary for real-time flow data exchange between Ridgeline's and ATPC's operational control centers. This component also includes the engineering and programming costs associated with integrating the Wetzel County Interconnect into each party's existing SCADA system.

The estimated cost of the communication and SCADA integration component is approximately $1.8 million.

Engineering Analysis: Both parties require SCADA integration at the interconnect for operational monitoring, flow control, and data acquisition purposes. The base cost of SCADA integration for a standard interconnection of this type would be approximately $0.9 million. However, ATPC's operational control center in Pittsburgh specifies enhanced communication protocol requirements, including redundant telemetry pathways, specific data polling frequencies, and proprietary data formatting standards that exceed Ridgeline's SCADA requirements. These enhanced specifications add approximately $0.9 million in incremental costs above the base SCADA integration requirements.

Allocation: Of the $1.8 million in communication and SCADA integration costs, approximately $0.7 million is allocated to Ridgeline (reflecting Ridgeline's proportionate share of the base SCADA integration requirements) and approximately $1.1 million is allocated to ATPC (reflecting the incremental costs of meeting ATPC's enhanced communication protocol and data formatting requirements).

C. Summary of Component-Level Allocation

The following table summarizes the component-level cost allocation analysis:

The aggregate of the component-level allocations produces the overall 34.1% (Ridgeline) / 65.9% (ATPC) split that was filed with the Commission in Ridgeline's May 12, 2022 application. Ridgeline's $7.6 million share reflects facilities that primarily serve Ridgeline's system, including the pig launcher/receiver, Ridgeline-side piping and valving, and Ridgeline's proportionate share of joint-use metering, civil works, and SCADA facilities. ATPC's $14.7 million share reflects facilities that are primarily necessitated by or serve ATPC's system, including the enhanced metering equipment driven by ATPC's tariff and measurement standards, the pressure regulation equipment necessitated by the differential between the two systems' operating pressures, the diameter transition fittings and 30-inch-class valving driven by ATPC's larger mainline, and ATPC's enhanced SCADA communication requirements.

D. Ridgepoint Appraisal & Valuation Inc. Engineering Review

The component-level cost estimates and the engineering basis for the allocation have been independently verified by Ridgepoint Appraisal & Valuation Inc. ("Ridgepoint"), an engineering consulting and appraisal firm based in Houston, Texas. Ridgepoint was engaged by Ridgeline to provide an independent review of the engineering specifications, cost estimates, and allocation methodology for the Wetzel County Interconnect facilities.

Ridgepoint's review encompassed: (1) verification of the cost estimates for each facility component against current market pricing for materials, equipment, and construction labor in the Appalachian region; (2) review of the engineering specifications for each component, including comparison against industry standards and FERC measurement requirements; (3) assessment of the allocation methodology, including the classification of each component as joint-use, sole-use, or weighted-share; and (4) comparison of the proposed allocation against Ridgepoint's database of comparable interconnection projects involving pipelines of differing diameters and operating pressures.

Ridgepoint confirmed that the $22.3 million cost estimate is reasonable and consistent with current market conditions for interconnection facility construction in the region. Ridgepoint further confirmed that the 34.1%/65.9% allocation is consistent with industry practice for interconnections between pipelines of differing diameters and operating pressures. Specifically, Ridgepoint found that in comparable interconnection projects where one party's system operates at a larger diameter and/or different pressure than the other party's system, the party with the larger diameter and/or the pressure differential-inducing operating parameters has typically borne between 58% and 72% of the interconnection facilities costs, with an average of approximately 64%. The proposed 65.9% allocation to ATPC falls squarely within this range.

Ridgepoint's engineering review report will be available for citation in Thomas Greaves' pre-filed direct testimony, scheduled for filing on December 5, 2022, and in subsequent filings as needed.

V. Rebuttal of ATPC's 50/50 Cost Allocation Proposal

A. ATPC's Arguments Summarized

In its August 15, 2022 protest, filed by William Pratt of Kellner, Royce & Dillard LLP, ATPC advances four principal arguments in support of its proposed 50/50 cost allocation:

(1) Equal Benefit: Both parties benefit equally from the interconnection, and therefore costs should be split equally.

(2) Initiating Party: Ridgeline is the party initiating the interconnection application, and therefore Ridgeline should bear no less than 50% of the costs.

(3) Metering Design Inadequacy: The proposed metering station design is inadequate and would require additional investment if brought up to ATPC's standards. ATPC contends that it should not bear the costs of Ridgeline's alleged design deficiencies.

(4) Impact on Existing Shippers: The cost allocation methodology improperly shifts $14.7 million to ATPC's existing shippers who did not request the interconnection and should not be required to bear the costs of a facility that was not built for their benefit.

Each of these arguments is addressed and rebutted below.

B. Rebuttal: "Equal Benefit" Argument Fails

ATPC's "equal benefit" argument is premised on the assertion that both parties benefit equally from the interconnection and that equal benefit should translate into equal cost responsibility. This argument fundamentally conflates the benefit of the interconnection itself — the establishment of a physical link between two pipeline systems — with the benefit of the specific facility components that comprise the interconnection. It is the latter, not the former, that drives cost allocation under FERC precedent.

The Commission has repeatedly rejected the notion that an interconnection automatically benefits both parties equally. While it is true that both Ridgeline and ATPC will derive operational and commercial benefits from the Wetzel County Interconnect, the magnitude and nature of those benefits are not equal, and in any event, the cost allocation analysis must focus on which party's system requirements drive the cost of each facility component, not on the abstract proposition that both parties benefit from having an interconnection.

The engineering evidence presented in Section IV demonstrates conclusively that the majority of the interconnection costs — approximately 65.9% — are driven by ATPC's system specifications. ATPC's 30-inch mainline diameter, its operating pressure differential relative to Ridgeline's system, its tariff-mandated measurement accuracy standards, and its enhanced SCADA communication requirements are the primary cost drivers at the Wetzel County Interconnect. These are not costs that result from Ridgeline's system design or operational requirements; they are costs that are necessitated by and attributable to ATPC's system configuration.

Moreover, the bidirectional design capacity of 800 MMcf/d (expandable to 1.2 Bcf/d) provides significant and disproportionate benefit to ATPC. The interconnection will enable ATPC to access Marcellus and Utica shale gas supply gathered and transported by the Ridgeline system, enhancing ATPC's competitive position in serving markets throughout Pennsylvania, Ohio, and New York. ATPC's 640-mile interstate system and 3.8 Bcf/d capacity will be augmented by access to a major new supply source, strengthening ATPC's market offerings and enhancing the value of its transportation service to its existing and prospective shippers. While Ridgeline also benefits from access to ATPC's downstream markets, the relative enhancement to ATPC's competitive position and service offerings is greater, further supporting a cost allocation that assigns a majority share to ATPC.

C. Rebuttal: "Initiating Party" Argument Is Irrelevant

ATPC's second argument — that Ridgeline should bear at least 50% of the costs because Ridgeline initiated the interconnection application — conflates procedural posture with substantive cost allocation. The Commission has consistently held that cost allocation for interconnection facilities is governed by cost-causation principles, not by which party initiated the request for interconnection.

The identity of the initiating party determines the procedural burden of proof: under NGA Section 4, the applicant bears the initial burden to demonstrate that the proposed allocation is just and reasonable. Ridgeline has met this burden through the detailed engineering and cost-causation analysis presented in its application and supporting materials. However, the mere fact that Ridgeline initiated the proceeding does not determine the substantive outcome of the cost allocation analysis. If Ridgeline's engineering evidence demonstrates that ATPC's system specifications drive 65.9% of the interconnection costs, the appropriate allocation is 65.9% to ATPC, regardless of which party filed the application.

Ridgeline's initiation of the interconnection application reflects Ridgeline's commercial interest in establishing a physical connection to ATPC's interstate trunk line. That commercial interest does not alter the engineering reality that ATPC's system specifications — its larger mainline diameter, its operating pressure differential, its more complex metering and SCADA requirements — drive the majority of the facilities costs. ATPC's argument essentially seeks to penalize Ridgeline for taking the affirmative step of proposing an interconnection that will benefit both systems, an approach that the Commission has recognized would discourage beneficial infrastructure development in contravention of the policies underlying the NGA and the Commission's open-access transportation regime.

D. Rebuttal: Metering Station Design Adequacy

ATPC's third argument challenges the adequacy of the proposed metering station design, asserting that the design is inadequate and would require additional investment to meet ATPC's standards. This argument is factually incorrect and, to the extent it has any force, actually supports Ridgeline's cost allocation position rather than undermining it.

The proposed metering station design — three runs of 12-inch ultrasonic flow meters plus gas chromatographs — meets or exceeds industry standards for custody transfer measurement at interconnection points of the design capacity contemplated here (800 MMcf/d, expandable to 1.2 Bcf/d). The design is consistent with the measurement accuracy requirements set forth in the American Gas Association's Report No. 9 (Measurement of Gas by Multipath Ultrasonic Meters), the American Petroleum Institute's Manual of Petroleum Measurement Standards (Chapter 21.1), and the Commission's measurement requirements as reflected in the general terms and conditions of FERC-jurisdictional tariffs.

Thomas Greaves, Vice President of Engineering & Operations at Ridgeline, has confirmed the adequacy of the proposed design and will address the metering station specifications in detail in his pre-filed direct testimony, scheduled for filing on December 5, 2022. Mr. Greaves has over 25 years of experience in pipeline engineering and operations, including the design and construction of multiple custody transfer metering stations on interstate and intrastate pipeline systems in the Appalachian Basin.

To the extent ATPC desires additional or enhanced metering capabilities beyond what is required by applicable industry standards and Commission requirements — for example, additional redundant metering runs, specialized gas chromatograph configurations, or proprietary measurement protocols specified in ATPC's tariff — those incremental costs should be borne by ATPC under cost-causation principles. ATPC cannot simultaneously argue that the metering station design is inadequate and that it should not bear the costs of bringing the design up to its own standards. The engineering evidence demonstrates that the design specifications that drive the metering costs above what Ridgeline would require are attributable to ATPC's tariff provisions and measurement requirements, and those costs are properly allocated to ATPC.

E. Rebuttal: Impact on ATPC's Existing Shippers

ATPC's fourth argument contends that its existing shippers should not bear the cost of the interconnection because they did not request it. While this argument may have superficial appeal, it fails under established Commission policy for several reasons.

First, ATPC's existing shippers will benefit from the interconnection. The Wetzel County Interconnect will provide ATPC's system with access to incremental supply from the Marcellus and Utica shale formations gathered and transported by Ridgeline. This additional supply source will enhance the reliability and diversity of supply available to ATPC's shippers, reducing their dependence on existing supply interconnections and improving the overall supply portfolio available on the ATPC system. Supply diversity is a recognized benefit in the Commission's evaluation of pipeline infrastructure, and existing shippers who gain access to new supply sources through an interconnection are properly required to bear a proportionate share of the associated costs.

Second, the Commission has recognized in numerous proceedings that existing shippers may appropriately bear a share of interconnection costs where they will benefit from the new interconnection. The Commission's policy is not limited to the narrow proposition that only shippers who "requested" a facility should pay for it; rather, the Commission examines whether existing shippers will benefit from the facility and, if so, whether the allocation of costs to those shippers produces a just and reasonable result. Here, the benefits to ATPC's existing shippers — including enhanced supply access, improved system reliability, and increased supply diversity — support the allocation of interconnection costs to ATPC.

Third, the Mountainside Gas Producers Coalition, representing fourteen independent natural gas producers operating in the Marcellus and Utica shale formations, has intervened in this proceeding in support of the interconnection. The Coalition's support demonstrates the significant market demand for the interconnection from the production community, which will in turn generate throughput on ATPC's system that benefits ATPC's existing shippers. The producers' enthusiasm for the interconnection reflects the commercial reality that the Wetzel County Interconnect will facilitate substantial gas flows that will enhance both Ridgeline's and ATPC's systems.

Fourth, the Clearwater Municipal Gas Authority's concern about potential rate increases on ATPC's system, while understandable, should be addressed through ATPC's own rate proceedings, not by reallocating interconnection costs to Ridgeline. CMGA's concern relates to the downstream rate impact on ATPC's captive customers — a matter that is within ATPC's control and subject to ATPC's own cost-of-service and rate design determinations. Shifting $3.55 million in costs from ATPC to Ridgeline to ameliorate the rate impact on CMGA would require Ridgeline's shippers to subsidize ATPC's rate levels, an outcome that would be unjust and unreasonable under NGA Section 4.

F. A 50/50 Split Would Produce Unjust and Unreasonable Results

The cumulative effect of ATPC's proposed 50/50 allocation would be to produce results that are unjust and unreasonable under the Natural Gas Act. Under a 50/50 split, each party would bear $11.15 million of the $22.3 million interconnection cost:

Under the 50/50 scenario, Ridgeline would be required to bear $3.55 million in additional costs — costs attributable to facilities that are primarily necessitated by ATPC's system specifications. This additional $3.55 million would flow into Ridgeline's rate base, increasing the cost of service to Ridgeline's shippers and the proposed recourse rate. As detailed in Section VI below, the incremental rate impact on Ridgeline's shippers would be approximately $0.0012–$0.0018/Dth, depending on the load factor assumption applied.

Conversely, under the 50/50 scenario, ATPC's existing shippers would receive a $3.55 million subsidy — they would avoid paying for facilities that are necessitated by ATPC's own system and that will primarily serve ATPC's operational and commercial needs. This cross-subsidization would be precisely the type of unjust and unreasonable result that the Commission's cost-causation doctrine is designed to prevent.

The 50/50 allocation proposed by ATPC is a mechanical, arbitrary approach that bears no relationship to the engineering evidence, the cost drivers, or the relative benefits of the interconnection facilities. It should be rejected.

VI. Economic Impact Analysis

A. Impact on Ridgeline's Rate Base and Cost of Service

This section quantifies the economic impact of ATPC's proposed 50/50 cost allocation on Ridgeline's rate base, cost of service, and proposed recourse rate.

If Ridgeline's share of the interconnection facilities costs increases from $7.6 million (under the proposed 34.1%/65.9% allocation) to $11.15 million (under ATPC's 50/50 proposal), the additional $3.55 million would be added to Ridgeline's rate base. Ridgeline's current rate base, as filed with the Commission in the companion rate case (Docket No. RP22-847-000), is $612.40 million. Under the 50/50 allocation, Ridgeline's revised rate base would be:

$612.40 million + $3.55 million = $615.95 million

At Ridgeline's originally proposed weighted average cost of capital ("WACC") of 10.0625% — reflecting the proposed return on equity, cost of debt, and capital structure — the incremental return on the additional $3.55 million in rate base would be approximately:

$3.55 million × 10.0625% = approximately $357,000 per year

When the effects of depreciation (using Ridgeline's proposed depreciation rate for interconnection facilities), operations and maintenance expenses associated with the incremental facilities, and applicable income tax effects (including the gross-up for income taxes at the currently applicable federal corporate tax rate of 21% and the applicable state income tax rate) are taken into account, the total annual cost-of-service impact of the additional $3.55 million would be approximately $500,000–$600,000 per year.

This incremental annual cost of service would increase Ridgeline's proposed recourse rate as follows:

• On the original 100% load factor basis with annual billing determinants of 438,000,000 Dth/yr (based on the system's design capacity of 1,200,000 Dth/d × 365 days): the rate impact would be approximately $0.0012–$0.0014/Dth.

• On the revised 75% load factor basis currently contemplated in the tariff redesign, with annual billing determinants of 328,500,000 Dth/yr (based on 900,000 Dth/d × 365 days): the rate impact would be approximately $0.0016–$0.0018/Dth.

While these per-unit impacts may appear modest in isolation, they represent an unjust burden on Ridgeline's shippers — producers and marketers who would be required to pay higher transportation rates to subsidize interconnection facilities that are necessitated by ATPC's system specifications. Over the life of the interconnection facilities (typically 30–40 years for pipeline facilities), the cumulative impact would be substantial.

Furthermore, the rate impact analysis should be considered in the context of the broader rate case. Ridgeline's proposed recourse rate is $0.2265/Dth on the original filing basis, and every incremental cent per Dth is significant in a competitive transportation market where producers have multiple pipeline options for moving gas from the Marcellus and Utica production areas to downstream markets. An unjustified increase in Ridgeline's recourse rate could undermine Ridgeline's competitive position and reduce system throughput, ultimately harming both Ridgeline and its shippers.

B. Impact on ATPC's System and Shippers

Under the proposed 34.1%/65.9% allocation, ATPC's $14.7 million share of the interconnection facilities costs would be recovered through ATPC's own rate mechanism or absorbed by ATPC as a cost of expanding its system's interconnection infrastructure. The magnitude of ATPC's share should be considered in context:

Enterprise Value Context: ATPC's $14.7 million share represents less than 0.24% of Tidewater Infrastructure Partners LP's estimated enterprise value of approximately $6.1 billion. This is a de minimis capital expenditure in the context of Tidewater's overall asset base and capital investment program. Tidewater, as a major infrastructure platform controlled by the Alderman family, routinely makes capital investments of this magnitude or larger in connection with system expansions, interconnections, and integrity management projects across its portfolio.

System Capacity Context: ATPC's system capacity of 3.8 Bcf/d and 640-mile pipeline network provide ample throughput over which to allocate the $14.7 million in interconnection facilities costs, minimizing the per-unit impact on ATPC's shippers. If ATPC were to roll its $14.7 million share into rate base and recover it through its transportation rates, the per-unit impact on ATPC's billing determinants would be far smaller than the corresponding impact on Ridgeline's billing determinants, given ATPC's substantially larger throughput and rate base.

Clearwater Municipal Gas Authority: CMGA's concern about rate impacts on ATPC's system is understandable but does not support a reallocation of interconnection costs to Ridgeline. The $14.7 million allocation to ATPC, when spread across ATPC's 3.8 Bcf/d system capacity, would have a minimal per-unit rate impact on CMGA's transportation costs. Any rate impact on CMGA would be addressed through ATPC's own rate proceedings, in which CMGA would have the opportunity to contest the magnitude and recovery of the interconnection costs. Reallocating costs to Ridgeline to mitigate rate impacts on ATPC's customers would be an improper cross-subsidization that the Commission's cost-causation doctrine is specifically designed to prevent.

The following table illustrates the relative impact of the interconnection cost allocation on each party's system:

As this comparison demonstrates, the $14.7 million allocation to ATPC is proportionately far less burdensome to ATPC and its shippers than the alternative — requiring Ridgeline to bear an ad

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum was prepared by Calderwood & Harkness LLP at the direction of and for the benefit of Ridgeline Midstream Services LLC and Dunmore Energy Holdings Ltd. in connection with pending and anticipated litigation before the Federal Energy Regulatory Commission. This document is protected by the attorney-client privilege and the work product doctrine. Do not distribute or reproduce without the express written consent of the undersigned.
CALDERWOOD & HARKNESS LLP 1601 K Street NW, Suite 900 Washington, DC 20006 Telephone: (202) 555-7200 Facsimile: (202) 555-7201
MEMORANDUM
TO: Patricia Dunmore, Founder & Chairperson, Dunmore Energy Holdings Ltd. James K. Winfield, CEO & President, Ridgeline Midstream Services LLC
FROM: George Trujillo, Responsible Partner, Energy & Infrastructure Practice Group Brett Callahan, Lead Associate, Energy & Infrastructure Practice Group
DATE: October 28, 2022
RE: Interconnection Cost Allocation Analysis — Wetzel County Interconnect Facilities (FERC Docket Nos. RP22-847-000 and RP22-847-001)
C&H Matter No.: 1016-00005
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I. Executive Summary
The purpose of this memorandum is to analyze the legal and economic basis for the proposed 34.1% (Ridgeline Midstream Services LLC) / 65.9% (Appalachian Trunk Pipeline Company, LLC) cost allocation of the $22.3 million Wetzel County Interconnect facilities, and to rebut ATPC's advocacy for a mechanical 50/50 split ($11.15 million each) as asserted in ATPC's August 15, 2022 protest filed in FERC Docket No. RP22-847-001.
On May 12, 2022, Ridgeline Midstream Services LLC ("Ridgeline"), a Delaware limited liability company and wholly owned subsidiary of Dunmore Energy Holdings Ltd. ("Dunmore"), filed an application with the Federal Energy Regulatory Commission ("FERC" or "the Commission") seeking approval of an initial tariff rate and physical interconnection authorization with Appalachian Trunk Pipeline Company, LLC ("ATPC") at the Wetzel County Interconnect. The application was docketed under Docket No. RP22-847-000 for the rate case and Docket No. RP22-847-001 for the interconnection proceeding. Calderwood & Harkness LLP was engaged contemporaneously with the filing to serve as lead litigation counsel.
ATPC, a Pennsylvania limited liability company and subsidiary of Tidewater Infrastructure Partners LP ("Tidewater"), protested the application on August 15, 2022, arguing that the proposed cost allocation improperly shifts approximately $14.7 million in interconnection facilities costs to ATPC's existing shippers — shippers who, according to ATPC, did not request and will not disproportionately benefit from the interconnection. ATPC's counsel, William Pratt, Senior Partner at Kellner, Royce & Dillard LLP, advanced a counterproposal for an equal 50/50 cost split ($11.15 million each) and further argued that Ridgeline's proposed metering station design was inadequate. Ridgeline filed its answer to ATPC's protest on October 17, 2022, preserving all arguments set forth in its original application and identifying additional grounds for rejecting ATPC's proposed allocation.
Bottom-Line Conclusion: Based on our comprehensive analysis of the engineering specifications, applicable FERC precedent, and the cost-causation principles that have governed interconnection cost allocation under the Natural Gas Act for decades, we conclude that the 34.1%/65.9% allocation is well-supported and should be maintained as Ridgeline's primary position in both the hearing proceeding and settlement negotiations. The proposed allocation is consistent with established FERC cost-causation principles, the guidance set forth in FERC Order No. 2004 and its progeny, and a detailed engineering-based analysis of which party's system benefits from and necessitates each component of the interconnection facilities. ATPC's proposed 50/50 split lacks factual foundation and legal support and would result in an unjust and unreasonable allocation under Sections 4 and 7 of the Natural Gas Act, 15 U.S.C. §§ 717c, 717f, by requiring Ridgeline's shippers to subsidize interconnection facilities costs that are driven primarily by ATPC's system specifications, operating parameters, and tariff requirements.
This memorandum is prepared in advance of the prehearing conference scheduled for November 14, 2022, to inform the legal team's litigation posture on interconnection cost allocation and to provide a framework for the settlement discussions before Settlement Judge Howard Margolis, scheduled to commence on November 30, 2022.
II. Background
A. The Ridgeline Pipeline System
Ridgeline Midstream Services LLC operates a 187-mile, 24-inch-diameter high-pressure natural gas pipeline extending from the Wetzel County Interconnect in Wetzel County, West Virginia (approximate coordinates: 39.6120° N, 80.7540° W) to the Waynesburg Compressor Station in Greene County, Pennsylvania (approximate coordinates: 39.8965° N, 80.1810° W). The pipeline was designed and constructed to provide open-access transportation service for natural gas produced in the Marcellus and Utica shale formations of the central Appalachian Basin.
The system has a design capacity of 1.2 Bcf/d (equivalent to 1,200,000 Dth/d at an assumed BTU content of 1,000 BTU/cf). Current throughput stands at approximately 680 MMcf/d, representing a utilization rate of approximately 56.67% of nameplate capacity. The system is currently ramping throughput as additional producer interconnections come online along the pipeline corridor.
Ridgeline's compression infrastructure consists of three compressor stations — the Wetzel Station, the Mannington Station, and the Waynesburg Station — with aggregate installed compression of 45,000 horsepower. These stations are strategically positioned along the pipeline corridor to maintain design pressures and flow rates throughout the system's operating range.
The Ridgeline pipeline system achieved its in-service date on October 1, 2021, following a construction period of approximately eighteen months. The original construction cost was $587.2 million, exclusive of the Wetzel County Interconnect facilities that are the subject of this analysis.
Ridgeline is organized as a Delaware limited liability company with a single member — Dunmore Energy Holdings Ltd. — which holds 100% of the membership interests. Ridgeline maintains its principal office at 700 Kanawha Boulevard East, Suite 1400, Charleston, West Virginia 25301. Its Delaware registered agent is Capitol Filings Inc., located at 1209 Orange Street, Wilmington, Delaware 19801. Ridgeline's FERC Code is 960442, and its Employer Identification Number is 87-4231956.
B. The ATPC System
Appalachian Trunk Pipeline Company, LLC is a FERC-jurisdictional interstate natural gas pipeline system consisting of approximately 640 miles of mainline and lateral pipeline serving markets in Pennsylvania, Ohio, and New York. ATPC's current system capacity is 3.8 Bcf/d, making it one of the larger interstate pipeline systems operating in the Appalachian region. ATPC's mainline traverses a north-south corridor through western Pennsylvania, with multiple interconnections to other interstate and intrastate pipeline systems, local distribution companies, and power generation facilities throughout its service territory.
ATPC is a Pennsylvania limited liability company and a wholly owned subsidiary of Tidewater Infrastructure Partners LP, a Delaware limited partnership. Tidewater's general partner is Tidewater GP Inc., and the partnership is controlled by the Alderman family. Harrison J. Alderman serves as Chairman, and Marcus R. Alderman serves as President and Chief Executive Officer. Tidewater's estimated enterprise value is approximately $6.1 billion, reflecting its diversified portfolio of midstream and infrastructure assets across the Appalachian Basin and the Mid-Atlantic region.
ATPC maintains its principal office at 2200 Penn Center West, Suite 300, Pittsburgh, Pennsylvania 15276. Its registered agent is Keystone Corporate Services LLC, located at 600 North Second Street, Harrisburg, Pennsylvania 17101. ATPC's FERC Code is 840117, and its Employer Identification Number is 25-1987643. Tidewater Infrastructure Partners LP's Employer Identification Number is 51-0438712. Sandra K. Fenton serves as ATPC's Vice President, Regulatory Affairs, and has been the primary point of contact for regulatory matters related to the interconnection.
C. The Proposed Interconnection
The proposed Wetzel County Interconnect is a new meter station and pig launcher/receiver to be located at milepost 0.0 of the Ridgeline system, tying into ATPC's existing 30-inch mainline at ATPC Milepost 412.6 in Wetzel County, West Virginia. The interconnect will establish a physical connection between the two pipeline systems, enabling the transportation of natural gas from the Marcellus and Utica shale production areas served by Ridgeline into ATPC's interstate trunk line for delivery to downstream markets.
The design capacity at the interconnect is 800 MMcf/d bidirectional, with provisions for expansion to 1.2 Bcf/d through the addition of supplemental metering runs and compression enhancements. The bidirectional design is intended to provide operational flexibility for both systems, allowing gas to flow from Ridgeline into ATPC or, under certain operational conditions, from ATPC into Ridgeline.
The key facilities comprising the Wetzel County Interconnect include:
• Ultrasonic flow meters (three runs, 12-inch diameter) for custody transfer measurement;
• Gas chromatographs for real-time gas quality measurement and analysis;
• SCADA integration equipment for remote monitoring, control, and data transmission;
• A pig launcher/receiver assembly for pipeline integrity management and inline inspection;
• Valving, piping, and associated mechanical connections between Ridgeline's 24-inch line and ATPC's 30-inch mainline;
• Pressure regulation and control equipment;
• Associated civil works, including site preparation, foundations, access roads, fencing, and drainage.
The total estimated cost of the interconnection facilities is $22.3 million, based on detailed engineering estimates prepared by Ridgeline's internal engineering team and reviewed by an independent third party. The original target in-service date for the interconnect was the fourth quarter of 2023; however, this date has been delayed pending resolution of the current proceeding before the Commission.
D. Proposed Cost Allocation (as Filed)
In its May 12, 2022 application, Ridgeline proposed the following cost allocation for the $22.3 million Wetzel County Interconnect facilities:
For convenience, the allocation is referred to throughout this memorandum as 34.1% (Ridgeline) / 65.9% (ATPC), and the dollar amounts are rounded to $7.6 million and $14.7 million, respectively.
The basis for this allocation is a component-level engineering analysis that identifies each discrete facility element comprising the interconnection, determines whether each component is "joint-use" or "sole-use," and allocates costs to the party whose system operations necessitate or primarily benefit from each component. This methodology is described in detail in Section IV of this memorandum and is supported by the engineering analysis prepared by Thomas Greaves, Vice President of Engineering & Operations at Ridgeline, and independently reviewed by Ridgepoint Appraisal & Valuation Inc.
E. ATPC's Position (Per August 15, 2022 Protest)
ATPC filed a protest and motion to intervene on August 15, 2022, in Docket No. RP22-847-001. In its protest, ATPC raised three principal objections to the proposed interconnection cost allocation:
First, ATPC argued that both parties benefit equally from the interconnection and that costs should therefore be split on an equal, 50/50 basis, resulting in each party bearing $11.15 million of the $22.3 million total.
Second, ATPC contended that Ridgeline's proposed metering station design is inadequate, failing to meet ATPC's tariff standards for custody transfer measurement, and that requiring ATPC to bear 65.9% of the costs for a facility that ATPC considers insufficiently designed would be unjust and unreasonable.
Third, ATPC argued that the proposed cost allocation methodology improperly shifts $14.7 million in facilities costs to ATPC's existing shippers — shippers who did not request the interconnection and who, in ATPC's view, should not be required to subsidize Ridgeline's market access.
ATPC's protest was filed by its counsel, William Pratt, Senior Partner, Kellner, Royce & Dillard LLP, One PPG Place, Suite 2800, Pittsburgh, Pennsylvania 15222.
Two additional parties have intervened in the proceeding. The Clearwater Municipal Gas Authority ("CMGA") filed an intervention on August 1, 2022. CMGA is a municipal gas distribution authority that receives transportation service on the ATPC system; its General Manager is Dennis Ott, and it is represented by Stephen Greer of Fordham Municipal Law Group PC, 312 Adams Avenue, Suite 100, Scranton, Pennsylvania 18503. CMGA has aligned itself with ATPC's cost allocation position, expressing concern that the allocation of $14.7 million to ATPC will ultimately be passed through to ATPC's captive customers, including CMGA, through increased rates.
The Mountainside Gas Producers Coalition ("MGPC") filed an intervention on July 28, 2022. MGPC is a trade association representing fourteen independent natural gas producers operating in the Marcellus and Utica shale formations. Its Executive Director is Calvin Dreyer, and it is represented by Rebekah Montague of Whitmore & Sable LLP, 1200 New Hampshire Avenue NW, Suite 600, Washington, DC 20036. MGPC generally supports the construction of the interconnection, recognizing its importance for producer access to interstate markets, but has taken no firm position on cost allocation.
F. Procedural Status
The procedural history of this matter is as follows:
• May 12, 2022: Ridgeline files its application for initial tariff rate and interconnection authorization, docketed as RP22-847-000 (rate case) and RP22-847-001 (interconnection). Calderwood & Harkness LLP engagement opened simultaneously under C&H Matter No. 1016-00005.
• June 14, 2022: FERC issues Notice of Filing and establishes an intervention deadline of August 15, 2022.
• July 28, 2022: Mountainside Gas Producers Coalition files a motion to intervene.
• August 1, 2022: Clearwater Municipal Gas Authority files a motion to intervene.
• August 15, 2022: ATPC files its protest and motion to intervene.
• September 22, 2022: FERC issues an order granting all interventions and setting the proceeding for hearing under a Track II procedural schedule. Settlement Judge Howard Margolis is appointed pursuant to Rule 603 of the Commission's Rules of Practice and Procedure, 18 C.F.R. § 385.603.
• October 17, 2022: Ridgeline files its answer to ATPC's protest.
• November 14, 2022 (upcoming): Administrative Law Judge Clara Whitfield to be appointed for the hearing proceeding; prehearing conference to be held.
• November 21, 2022 (anticipated): Statement of Issues due per the ALJ's prehearing conference order.
• November 30, 2022 (scheduled): First settlement conference before Settlement Judge Margolis.
• December 5, 2022 (anticipated): Filing of pre-filed direct testimony, including engineering testimony by Thomas Greaves and cost-of-service testimony by Angela Moretti.
This memorandum is prepared in advance of the prehearing conference to inform the legal team's litigation posture on interconnection cost allocation and to provide a comprehensive analytical foundation for both the hearing proceeding and settlement discussions.
III. Legal Framework for Interconnection Cost Allocation
A. Natural Gas Act Provisions
The allocation of interconnection facilities costs between Ridgeline and ATPC is governed by the Natural Gas Act ("NGA"), 15 U.S.C. § 717 et seq., and the Commission's implementing regulations. Three core provisions of the NGA bear directly on this analysis.
Section 4 (15 U.S.C. § 717c) requires that "[a]ll rates and charges made, demanded, or received by any natural-gas company for or in connection with the transportation or sale of natural gas subject to the jurisdiction of the Commission . . . shall be just and reasonable." The just and reasonable standard applies not only to transportation rates but also to the allocation of costs underlying those rates, including the allocation of interconnection facilities costs that will ultimately be reflected in each party's rate base and cost of service. Any allocation of costs that produces an unjust or unreasonable result — for instance, by requiring one party's ratepayers to subsidize facilities that are necessitated by and primarily benefit the other party's system — is impermissible under Section 4.
Section 5 (15 U.S.C. § 717d) empowers the Commission, upon its own motion or upon complaint, to investigate and determine whether existing rates or practices are unjust, unreasonable, unduly discriminatory, or preferential, and to fix just and reasonable rates. While Section 5 applies primarily to complaints against existing rates, its articulation of the unjust-and-unreasonable standard informs the Commission's review of proposed rate filings and cost allocations under Section 4.
Section 7 (15 U.S.C. § 717f) governs the authorization of pipeline construction and interconnections. Under Section 7, the Commission may attach conditions to the issuance of a certificate of public convenience and necessity, including conditions relating to the allocation of construction costs for interconnection facilities. The Commission's authority under Section 7 provides an independent basis for reviewing and approving (or modifying) the proposed cost allocation at the Wetzel County Interconnect.
The implementing regulations are found in three principal parts of Title 18 of the Code of Federal Regulations. Part 154 (18 C.F.R. Part 154) governs the filing of rates and tariffs by natural gas pipeline companies. Part 157 (18 C.F.R. Part 157) establishes the procedures and requirements for certificate applications, including applications for interconnection authorization. Part 284 (18 C.F.R. Part 284) implements the Commission's open-access transportation policies and establishes the framework for transportation service on interstate natural gas pipelines.
The Commission's long-standing policy, articulated across decades of ratemaking and certification proceedings, is that interconnection costs should be allocated on a cost-causation basis: costs should be borne by those who cause the costs to be incurred and who benefit from the facilities constructed. This principle is the cornerstone of NGA ratemaking and has been applied consistently by the Commission in interconnection proceedings involving both greenfield pipeline systems and expansions of existing systems.
B. FERC Order No. 2004 and Its Progeny
Order No. 2004, Standards of Conduct for Transmission Providers, 68 Fed. Reg. 69,134 (Dec. 11, 2003), FERC Stats. & Regs. ¶ 31,155 (2003), and its companion orders — Order No. 2004-A, 69 Fed. Reg. 23,562 (Apr. 29, 2004), and Order No. 2004-B, 69 Fed. Reg. 48,371 (Aug. 10, 2004) — primarily addressed the standards of conduct governing the relationship between transmission providers and their marketing affiliates. However, the Order No. 2004 proceeding also produced important guidance on the principles that govern physical interconnection facilities, the obligations of pipeline companies to provide non-discriminatory access to interconnection points, and the cost responsibility framework applicable to interconnecting pipelines.
In particular, the Commission's statements in Order No. 2004 and related proceedings reinforce the principle that the costs of interconnection facilities should be allocated based on cost causation, with attention to the specific engineering and operational requirements that each party's system imposes on the interconnection. The Commission has emphasized that interconnecting pipelines should bear costs proportionate to the facilities their systems necessitate, and that a blanket or mechanical allocation — such as an automatic 50/50 split — is inconsistent with cost-causation principles where the engineering evidence demonstrates that one party's system imposes disproportionate requirements on the interconnection facilities.
The Commission has consistently applied these principles in interconnection proceedings involving midstream and interstate pipeline systems. In multiple proceedings under NGA Section 7 and 18 C.F.R. Part 284, the Commission has examined the following factors in determining the appropriate cost allocation for physical interconnection facilities:
1. Benefit Analysis: Which party's customers will benefit from the interconnection, and in what proportion? Where one party's customers stand to benefit significantly more — for example, by gaining access to new supply sources or new markets — the Commission has assigned a greater share of interconnection costs to that party.
2. System-Specific Requirements: Which party's system requires the specific facilities in question? For example, where metering equipment must conform to one party's tariff measurement standards, or where pressure regulation equipment is necessitated by one party's operating pressure specifications, the Commission has allocated the costs of those components to the party whose system drives the design requirements.
3. Relative Design and Operational Demands: The relative design and operational demands each party places on the interconnection facilities. Where one party's system operates at a higher pressure, larger diameter, or more complex operational profile, the resulting incremental facility costs have been allocated to that party.
These principles have been applied in numerous Commission orders addressing interconnection facilities on Part 284 pipelines, and they provide the analytical framework within which Ridgeline's proposed 34.1%/65.9% allocation should be evaluated.
C. Cost-Causation Principles in FERC Jurisprudence
The cost-causation doctrine is one of the most deeply rooted principles in the Commission's ratemaking jurisprudence. As the Commission has articulated across a long line of decisions, the core of the cost-causation test is as follows: the entity whose system operations necessitate a particular facility component should bear the cost of that component. This principle ensures that ratepayers are not required to subsidize facilities that serve the needs of other parties' systems, and it promotes the efficient allocation of infrastructure costs across the natural gas transportation network.
A closely related corollary is the beneficiary-pays principle: where a particular facility or facility component provides disproportionate benefit to one party, that party should bear a proportionately greater share of the costs. The beneficiary-pays principle operates in tandem with the cost-causation test to ensure that both the cause and the benefit of interconnection facilities costs are considered in determining the appropriate allocation.
The Commission has repeatedly rejected mechanical 50/50 splits in circumstances where the engineering evidence demonstrates asymmetric cost causation. In such cases, the Commission has held that an equal split would produce an unjust and unreasonable result by requiring one party's ratepayers to cross-subsidize facilities that are necessitated by and primarily benefit the other party's system. The Commission's rejection of 50/50 splits is not categorical — an equal split may be appropriate where the evidence shows that both parties' systems impose roughly equal requirements on the interconnection facilities — but the Commission has made clear that the allocation must be driven by the evidence, not by a presumption of equality.
With respect to the burden of proof, the applicant bears the initial burden under NGA Section 4 to demonstrate that the proposed allocation is just and reasonable. Ridgeline bears this burden in the present proceeding and has met it through the detailed engineering analysis described in Section IV of this memorandum. However, a protesting party advocating an alternative allocation — in this case, ATPC's proposed 50/50 split — must present affirmative evidence supporting its position. It is not sufficient for the protestor to merely criticize the applicant's proposal; the protestor must demonstrate that its alternative allocation is consistent with cost-causation principles and would produce a just and reasonable result. As discussed in Section V below, ATPC has not met this burden.
D. Distinction Between Joint Facilities and Sole-Use Facilities
A critical analytical distinction in interconnection cost allocation proceedings is the distinction between joint-use facilities and sole-use facilities. The Commission has consistently recognized this distinction and has required that cost allocation methodologies properly categorize each facility component.
Joint-use facilities are those that serve the operational needs of both interconnecting pipelines and are necessary for the functioning of the interconnection regardless of which party's system specifications drive the design. Examples include basic site preparation, common-area civil works, and certain fundamental metering components that both parties require for custody transfer purposes. The costs of truly joint-use facilities are typically shared between the parties, either equally or on a weighted basis reflecting relative usage or benefit.
Sole-use facilities are those that are required solely or predominantly by one party's system and would not be necessary (or would not be designed to the same specifications) absent that party's particular system requirements. Examples include pressure regulation equipment necessitated by one party's operating pressure, enhanced metering capabilities required by one party's tariff provisions, and specialized piping or valve configurations driven by one party's mainline diameter or design specifications. The costs of sole-use facilities are allocated to the party that requires them.
The proper methodology for interconnection cost allocation therefore proceeds in three steps: (1) identify each discrete facility component comprising the interconnection; (2) determine whether each component is joint-use or sole-use, and if joint-use, determine the relative weighting; and (3) allocate the costs of each component accordingly. Where a component serves both parties but primarily benefits one party — a hybrid category between pure joint-use and pure sole-use — a weighted allocation based on relative benefit is appropriate.
This methodology has been applied in the present case to produce the 34.1%/65.9% allocation, as described in detail in Section IV.
IV. Engineering Analysis of Interconnection Facility Components
A. Overview of the $22.3 Million Cost Estimate
The total estimated cost of the Wetzel County Interconnect facilities is $22.3 million. This estimate was prepared by Thomas Greaves, Vice President of Engineering & Operations at Ridgeline Midstream Services LLC, based on detailed engineering specifications, vendor quotations, construction cost surveys, and historical cost data from comparable interconnection projects in the Appalachian Basin. The estimate was independently reviewed by Ridgepoint Appraisal & Valuation Inc. (5005 Woodway Drive, Suite 500, Houston, Texas 77056), an engineering consulting firm with extensive experience in the valuation and cost estimation of natural gas pipeline facilities.
The $22.3 million estimate encompasses all facility components necessary to establish a fully operational, bidirectional interconnection between Ridgeline's 24-inch pipeline at milepost 0.0 and ATPC's 30-inch mainline at ATPC Milepost 412.6. The estimate includes direct costs (materials, equipment, and labor), indirect costs (engineering, project management, and inspection), and appropriate contingency allowances consistent with industry standards for interconnection facility construction in the Appalachian region.
The following subsections present a component-by-component analysis of the $22.3 million cost estimate, identifying the engineering basis for the allocation of each component to Ridgeline, ATPC, or a shared allocation between the two parties.
B. Component-by-Component Analysis
1. Metering Facilities
The metering facilities at the Wetzel County Interconnect consist of three runs of 12-inch-diameter ultrasonic flow meters, gas chromatographs for continuous gas quality measurement and analysis, and associated electronic flow measurement equipment. These facilities are essential for custody transfer measurement — the precise quantification and quality determination of natural gas flowing between the Ridgeline and ATPC systems.
The estimated cost of the metering facilities is approximately $8.2 million, representing the single largest component of the $22.3 million interconnection cost estimate. This cost includes the ultrasonic flow meters themselves, the gas chromatograph units, the electronic flow measurement computers, the meter tube assemblies, and associated instrumentation, wiring, and commissioning costs.
Engineering Analysis: Metering at the interconnect is required by both parties for custody transfer purposes. However, the design specifications for the metering facilities — specifically, the requirement for three runs of 12-inch ultrasonic meters with gas chromatography capability — are driven primarily by ATPC's existing system requirements. ATPC's tariff, on file with the Commission, specifies detailed measurement accuracy standards for custody transfer points on its mainline, including requirements for redundant metering runs, specific accuracy tolerances, and continuous gas quality monitoring via gas chromatography. These tariff provisions reflect ATPC's operational practices at its existing interconnections along its 640-mile system and impose more stringent measurement requirements than would be necessary for Ridgeline's system alone.
If the interconnection were designed solely to meet Ridgeline's measurement requirements, a two-run metering installation with standard gas analysis equipment would be sufficient, at an estimated cost of approximately $4.9 million. The incremental cost of approximately $3.3 million attributable to the third metering run, the enhanced gas chromatograph specifications, and the additional electronic flow measurement redundancy required by ATPC's tariff is properly allocated to ATPC under cost-causation principles.
Allocation: Of the $8.2 million in metering facility costs, approximately $2.7 million is allocated to Ridgeline (reflecting Ridgeline's proportionate share of the base metering infrastructure that both parties require) and approximately $5.5 million is allocated to ATPC (reflecting the incremental metering complexity and redundancy necessitated by ATPC's tariff measurement standards and custody transfer protocols).
2. Pig Launcher/Receiver
The pig launcher/receiver assembly is located at milepost 0.0 of the Ridgeline system and is designed to facilitate pipeline integrity management and inline inspection activities. The facility enables the launching and receiving of pipeline inspection tools ("pigs"), including smart pigs equipped with magnetic flux leakage and caliper technologies for detecting corrosion, dents, and other anomalies in the pipeline wall.
The estimated cost of the pig launcher/receiver assembly, including associated valving, piping, and controls, is approximately $3.1 million.
Engineering Analysis: The pig launcher/receiver is located on the Ridgeline side of the interconnection and serves primarily Ridgeline's pipeline integrity management obligations under the Pipeline and Hazardous Materials Safety Administration ("PHMSA") integrity management regulations (49 C.F.R. Part 192, Subpart O) and Ridgeline's own integrity management plan. However, the bidirectional design of the interconnection means that the pig launcher/receiver also facilitates bi-directional pig runs that may benefit ATPC's mainline integrity inspections at the interconnection point. ATPC has indicated in prior engineering discussions that it may utilize the pig launcher/receiver for inspection activities on its adjacent mainline segment in the vicinity of ATPC Milepost 412.6.
Allocation: Approximately $2.5 million of the pig launcher/receiver costs is allocated to Ridgeline, reflecting its primary use for Ridgeline's pipeline integrity program. Approximately $0.6 million is allocated to ATPC, reflecting the facility's secondary benefit to ATPC's mainline integrity inspections and the bidirectional pig run capability that serves ATPC's operational needs.
3. Valving, Piping, and Civil Works
The valving, piping, and civil works component encompasses the isolation valves, block valves, check valves, and associated piping connections between Ridgeline's 24-inch pipeline and ATPC's 30-inch mainline. This component also includes all civil works necessary for the interconnect site, including site preparation, grading, concrete foundations for equipment, access road construction and paving, perimeter fencing, stormwater drainage, erosion controls, and environmental mitigation measures.
The estimated cost of valving, piping, and civil works is approximately $6.4 million.
Engineering Analysis: The diameter transition from Ridgeline's 24-inch pipeline to ATPC's 30-inch mainline requires specialized transition fittings, reducers, and valve configurations that are more complex and costly than would be necessary if both systems operated at the same diameter. The need for 30-inch-class valves and fittings on the ATPC side of the interconnection, as well as the transition piping from 24-inch to 30-inch, is driven by ATPC's larger mainline diameter. If both systems were 24-inch, the valving and piping costs would be reduced by an estimated $1.8 million.
The civil works, by contrast, are generally attributable to both parties in roughly equal measure, as the site preparation, foundations, and access roads serve the entire interconnect facility regardless of which party's system specifications drive the equipment design.
Allocation: Of the $6.4 million in valving, piping, and civil works costs, approximately $1.7 million is allocated to Ridgeline (reflecting Ridgeline-side valving, piping, and Ridgeline's proportionate share of civil works) and approximately $4.7 million is allocated to ATPC (reflecting the 30-inch-class valving and fittings, the diameter transition piping, and ATPC's proportionate share of civil works). The ATPC allocation is driven primarily by the cost differential attributable to ATPC's larger mainline diameter.
4. Pressure Regulation and Control Equipment
The pressure regulation and control equipment at the Wetzel County Interconnect is designed to manage the differential between Ridgeline's operating pressure and ATPC's mainline operating pressure. This equipment includes pressure regulators, relief valves, pressure transmitters, and associated control systems necessary to ensure safe and reliable gas flow across the interconnection at varying operating conditions.
The estimated cost of the pressure regulation and control equipment is approximately $2.8 million.
Engineering Analysis: Ridgeline's pipeline system operates at a maximum allowable operating pressure ("MAOP") of 1,440 psig, consistent with its 24-inch-diameter, X-70 grade steel pipe and design specifications. ATPC's mainline in the vicinity of Milepost 412.6 operates at a MAOP of 1,200 psig, reflecting ATPC's system design and operational parameters. The 240 psig differential between the two systems' operating pressures requires the installation of pressure regulation equipment at the interconnect to step down pressure from Ridgeline's higher operating pressure to a level compatible with ATPC's mainline.
This pressure regulation requirement is driven by ATPC's system configuration. If ATPC's mainline operated at the same pressure as Ridgeline's system, pressure regulation equipment would not be necessary at the interconnect, and the $2.8 million cost would be avoided entirely. Accordingly, the full cost of the pressure regulation and control equipment is properly attributable to ATPC's system under cost-causation principles.
Allocation: The entire $2.8 million in pressure regulation and control equipment costs is allocated to ATPC.
5. Communication and SCADA Integration
The communication and SCADA (Supervisory Control and Data Acquisition) integration component encompasses the SCADA equipment, telemetry hardware, communication infrastructure (including fiber optic and microwave communication links), and software integration necessary for real-time flow data exchange between Ridgeline's and ATPC's operational control centers. This component also includes the engineering and programming costs associated with integrating the Wetzel County Interconnect into each party's existing SCADA system.
The estimated cost of the communication and SCADA integration component is approximately $1.8 million.
Engineering Analysis: Both parties require SCADA integration at the interconnect for operational monitoring, flow control, and data acquisition purposes. The base cost of SCADA integration for a standard interconnection of this type would be approximately $0.9 million. However, ATPC's operational control center in Pittsburgh specifies enhanced communication protocol requirements, including redundant telemetry pathways, specific data polling frequencies, and proprietary data formatting standards that exceed Ridgeline's SCADA requirements. These enhanced specifications add approximately $0.9 million in incremental costs above the base SCADA integration requirements.
Allocation: Of the $1.8 million in communication and SCADA integration costs, approximately $0.7 million is allocated to Ridgeline (reflecting Ridgeline's proportionate share of the base SCADA integration requirements) and approximately $1.1 million is allocated to ATPC (reflecting the incremental costs of meeting ATPC's enhanced communication protocol and data formatting requirements).
C. Summary of Component-Level Allocation
The following table summarizes the component-level cost allocation analysis:
The aggregate of the component-level allocations produces the overall 34.1% (Ridgeline) / 65.9% (ATPC) split that was filed with the Commission in Ridgeline's May 12, 2022 application. Ridgeline's $7.6 million share reflects facilities that primarily serve Ridgeline's system, including the pig launcher/receiver, Ridgeline-side piping and valving, and Ridgeline's proportionate share of joint-use metering, civil works, and SCADA facilities. ATPC's $14.7 million share reflects facilities that are primarily necessitated by or serve ATPC's system, including the enhanced metering equipment driven by ATPC's tariff and measurement standards, the pressure regulation equipment necessitated by the differential between the two systems' operating pressures, the diameter transition fittings and 30-inch-class valving driven by ATPC's larger mainline, and ATPC's enhanced SCADA communication requirements.
D. Ridgepoint Appraisal & Valuation Inc. Engineering Review
The component-level cost estimates and the engineering basis for the allocation have been independently verified by Ridgepoint Appraisal & Valuation Inc. ("Ridgepoint"), an engineering consulting and appraisal firm based in Houston, Texas. Ridgepoint was engaged by Ridgeline to provide an independent review of the engineering specifications, cost estimates, and allocation methodology for the Wetzel County Interconnect facilities.
Ridgepoint's review encompassed: (1) verification of the cost estimates for each facility component against current market pricing for materials, equipment, and construction labor in the Appalachian region; (2) review of the engineering specifications for each component, including comparison against industry standards and FERC measurement requirements; (3) assessment of the allocation methodology, including the classification of each component as joint-use, sole-use, or weighted-share; and (4) comparison of the proposed allocation against Ridgepoint's database of comparable interconnection projects involving pipelines of differing diameters and operating pressures.
Ridgepoint confirmed that the $22.3 million cost estimate is reasonable and consistent with current market conditions for interconnection facility construction in the region. Ridgepoint further confirmed that the 34.1%/65.9% allocation is consistent with industry practice for interconnections between pipelines of differing diameters and operating pressures. Specifically, Ridgepoint found that in comparable interconnection projects where one party's system operates at a larger diameter and/or different pressure than the other party's system, the party with the larger diameter and/or the pressure differential-inducing operating parameters has typically borne between 58% and 72% of the interconnection facilities costs, with an average of approximately 64%. The proposed 65.9% allocation to ATPC falls squarely within this range.
Ridgepoint's engineering review report will be available for citation in Thomas Greaves' pre-filed direct testimony, scheduled for filing on December 5, 2022, and in subsequent filings as needed.
V. Rebuttal of ATPC's 50/50 Cost Allocation Proposal
A. ATPC's Arguments Summarized
In its August 15, 2022 protest, filed by William Pratt of Kellner, Royce & Dillard LLP, ATPC advances four principal arguments in support of its proposed 50/50 cost allocation:
(1) Equal Benefit: Both parties benefit equally from the interconnection, and therefore costs should be split equally.
(2) Initiating Party: Ridgeline is the party initiating the interconnection application, and therefore Ridgeline should bear no less than 50% of the costs.
(3) Metering Design Inadequacy: The proposed metering station design is inadequate and would require additional investment if brought up to ATPC's standards. ATPC contends that it should not bear the costs of Ridgeline's alleged design deficiencies.
(4) Impact on Existing Shippers: The cost allocation methodology improperly shifts $14.7 million to ATPC's existing shippers who did not request the interconnection and should not be required to bear the costs of a facility that was not built for their benefit.
Each of these arguments is addressed and rebutted below.
B. Rebuttal: "Equal Benefit" Argument Fails
ATPC's "equal benefit" argument is premised on the assertion that both parties benefit equally from the interconnection and that equal benefit should translate into equal cost responsibility. This argument fundamentally conflates the benefit of the interconnection itself — the establishment of a physical link between two pipeline systems — with the benefit of the specific facility components that comprise the interconnection. It is the latter, not the former, that drives cost allocation under FERC precedent.
The Commission has repeatedly rejected the notion that an interconnection automatically benefits both parties equally. While it is true that both Ridgeline and ATPC will derive operational and commercial benefits from the Wetzel County Interconnect, the magnitude and nature of those benefits are not equal, and in any event, the cost allocation analysis must focus on which party's system requirements drive the cost of each facility component, not on the abstract proposition that both parties benefit from having an interconnection.
The engineering evidence presented in Section IV demonstrates conclusively that the majority of the interconnection costs — approximately 65.9% — are driven by ATPC's system specifications. ATPC's 30-inch mainline diameter, its operating pressure differential relative to Ridgeline's system, its tariff-mandated measurement accuracy standards, and its enhanced SCADA communication requirements are the primary cost drivers at the Wetzel County Interconnect. These are not costs that result from Ridgeline's system design or operational requirements; they are costs that are necessitated by and attributable to ATPC's system configuration.
Moreover, the bidirectional design capacity of 800 MMcf/d (expandable to 1.2 Bcf/d) provides significant and disproportionate benefit to ATPC. The interconnection will enable ATPC to access Marcellus and Utica shale gas supply gathered and transported by the Ridgeline system, enhancing ATPC's competitive position in serving markets throughout Pennsylvania, Ohio, and New York. ATPC's 640-mile interstate system and 3.8 Bcf/d capacity will be augmented by access to a major new supply source, strengthening ATPC's market offerings and enhancing the value of its transportation service to its existing and prospective shippers. While Ridgeline also benefits from access to ATPC's downstream markets, the relative enhancement to ATPC's competitive position and service offerings is greater, further supporting a cost allocation that assigns a majority share to ATPC.
C. Rebuttal: "Initiating Party" Argument Is Irrelevant
ATPC's second argument — that Ridgeline should bear at least 50% of the costs because Ridgeline initiated the interconnection application — conflates procedural posture with substantive cost allocation. The Commission has consistently held that cost allocation for interconnection facilities is governed by cost-causation principles, not by which party initiated the request for interconnection.
The identity of the initiating party determines the procedural burden of proof: under NGA Section 4, the applicant bears the initial burden to demonstrate that the proposed allocation is just and reasonable. Ridgeline has met this burden through the detailed engineering and cost-causation analysis presented in its application and supporting materials. However, the mere fact that Ridgeline initiated the proceeding does not determine the substantive outcome of the cost allocation analysis. If Ridgeline's engineering evidence demonstrates that ATPC's system specifications drive 65.9% of the interconnection costs, the appropriate allocation is 65.9% to ATPC, regardless of which party filed the application.
Ridgeline's initiation of the interconnection application reflects Ridgeline's commercial interest in establishing a physical connection to ATPC's interstate trunk line. That commercial interest does not alter the engineering reality that ATPC's system specifications — its larger mainline diameter, its operating pressure differential, its more complex metering and SCADA requirements — drive the majority of the facilities costs. ATPC's argument essentially seeks to penalize Ridgeline for taking the affirmative step of proposing an interconnection that will benefit both systems, an approach that the Commission has recognized would discourage beneficial infrastructure development in contravention of the policies underlying the NGA and the Commission's open-access transportation regime.
D. Rebuttal: Metering Station Design Adequacy
ATPC's third argument challenges the adequacy of the proposed metering station design, asserting that the design is inadequate and would require additional investment to meet ATPC's standards. This argument is factually incorrect and, to the extent it has any force, actually supports Ridgeline's cost allocation position rather than undermining it.
The proposed metering station design — three runs of 12-inch ultrasonic flow meters plus gas chromatographs — meets or exceeds industry standards for custody transfer measurement at interconnection points of the design capacity contemplated here (800 MMcf/d, expandable to 1.2 Bcf/d). The design is consistent with the measurement accuracy requirements set forth in the American Gas Association's Report No. 9 (Measurement of Gas by Multipath Ultrasonic Meters), the American Petroleum Institute's Manual of Petroleum Measurement Standards (Chapter 21.1), and the Commission's measurement requirements as reflected in the general terms and conditions of FERC-jurisdictional tariffs.
Thomas Greaves, Vice President of Engineering & Operations at Ridgeline, has confirmed the adequacy of the proposed design and will address the metering station specifications in detail in his pre-filed direct testimony, scheduled for filing on December 5, 2022. Mr. Greaves has over 25 years of experience in pipeline engineering and operations, including the design and construction of multiple custody transfer metering stations on interstate and intrastate pipeline systems in the Appalachian Basin.
To the extent ATPC desires additional or enhanced metering capabilities beyond what is required by applicable industry standards and Commission requirements — for example, additional redundant metering runs, specialized gas chromatograph configurations, or proprietary measurement protocols specified in ATPC's tariff — those incremental costs should be borne by ATPC under cost-causation principles. ATPC cannot simultaneously argue that the metering station design is inadequate and that it should not bear the costs of bringing the design up to its own standards. The engineering evidence demonstrates that the design specifications that drive the metering costs above what Ridgeline would require are attributable to ATPC's tariff provisions and measurement requirements, and those costs are properly allocated to ATPC.
E. Rebuttal: Impact on ATPC's Existing Shippers
ATPC's fourth argument contends that its existing shippers should not bear the cost of the interconnection because they did not request it. While this argument may have superficial appeal, it fails under established Commission policy for several reasons.
First, ATPC's existing shippers will benefit from the interconnection. The Wetzel County Interconnect will provide ATPC's system with access to incremental supply from the Marcellus and Utica shale formations gathered and transported by Ridgeline. This additional supply source will enhance the reliability and diversity of supply available to ATPC's shippers, reducing their dependence on existing supply interconnections and improving the overall supply portfolio available on the ATPC system. Supply diversity is a recognized benefit in the Commission's evaluation of pipeline infrastructure, and existing shippers who gain access to new supply sources through an interconnection are properly required to bear a proportionate share of the associated costs.
Second, the Commission has recognized in numerous proceedings that existing shippers may appropriately bear a share of interconnection costs where they will benefit from the new interconnection. The Commission's policy is not limited to the narrow proposition that only shippers who "requested" a facility should pay for it; rather, the Commission examines whether existing shippers will benefit from the facility and, if so, whether the allocation of costs to those shippers produces a just and reasonable result. Here, the benefits to ATPC's existing shippers — including enhanced supply access, improved system reliability, and increased supply diversity — support the allocation of interconnection costs to ATPC.
Third, the Mountainside Gas Producers Coalition, representing fourteen independent natural gas producers operating in the Marcellus and Utica shale formations, has intervened in this proceeding in support of the interconnection. The Coalition's support demonstrates the significant market demand for the interconnection from the production community, which will in turn generate throughput on ATPC's system that benefits ATPC's existing shippers. The producers' enthusiasm for the interconnection reflects the commercial reality that the Wetzel County Interconnect will facilitate substantial gas flows that will enhance both Ridgeline's and ATPC's systems.
Fourth, the Clearwater Municipal Gas Authority's concern about potential rate increases on ATPC's system, while understandable, should be addressed through ATPC's own rate proceedings, not by reallocating interconnection costs to Ridgeline. CMGA's concern relates to the downstream rate impact on ATPC's captive customers — a matter that is within ATPC's control and subject to ATPC's own cost-of-service and rate design determinations. Shifting $3.55 million in costs from ATPC to Ridgeline to ameliorate the rate impact on CMGA would require Ridgeline's shippers to subsidize ATPC's rate levels, an outcome that would be unjust and unreasonable under NGA Section 4.
F. A 50/50 Split Would Produce Unjust and Unreasonable Results
The cumulative effect of ATPC's proposed 50/50 allocation would be to produce results that are unjust and unreasonable under the Natural Gas Act. Under a 50/50 split, each party would bear $11.15 million of the $22.3 million interconnection cost:
Under the 50/50 scenario, Ridgeline would be required to bear $3.55 million in additional costs — costs attributable to facilities that are primarily necessitated by ATPC's system specifications. This additional $3.55 million would flow into Ridgeline's rate base, increasing the cost of service to Ridgeline's shippers and the proposed recourse rate. As detailed in Section VI below, the incremental rate impact on Ridgeline's shippers would be approximately $0.0012–$0.0018/Dth, depending on the load factor assumption applied.
Conversely, under the 50/50 scenario, ATPC's existing shippers would receive a $3.55 million subsidy — they would avoid paying for facilities that are necessitated by ATPC's own system and that will primarily serve ATPC's operational and commercial needs. This cross-subsidization would be precisely the type of unjust and unreasonable result that the Commission's cost-causation doctrine is designed to prevent.
The 50/50 allocation proposed by ATPC is a mechanical, arbitrary approach that bears no relationship to the engineering evidence, the cost drivers, or the relative benefits of the interconnection facilities. It should be rejected.
VI. Economic Impact Analysis
A. Impact on Ridgeline's Rate Base and Cost of Service
This section quantifies the economic impact of ATPC's proposed 50/50 cost allocation on Ridgeline's rate base, cost of service, and proposed recourse rate.
If Ridgeline's share of the interconnection facilities costs increases from $7.6 million (under the proposed 34.1%/65.9% allocation) to $11.15 million (under ATPC's 50/50 proposal), the additional $3.55 million would be added to Ridgeline's rate base. Ridgeline's current rate base, as filed with the Commission in the companion rate case (Docket No. RP22-847-000), is $612.40 million. Under the 50/50 allocation, Ridgeline's revised rate base would be:
$612.40 million + $3.55 million = $615.95 million
At Ridgeline's originally proposed weighted average cost of capital ("WACC") of 10.0625% — reflecting the proposed return on equity, cost of debt, and capital structure — the incremental return on the additional $3.55 million in rate base would be approximately:
$3.55 million × 10.0625% = approximately $357,000 per year
When the effects of depreciation (using Ridgeline's proposed depreciation rate for interconnection facilities), operations and maintenance expenses associated with the incremental facilities, and applicable income tax effects (including the gross-up for income taxes at the currently applicable federal corporate tax rate of 21% and the applicable state income tax rate) are taken into account, the total annual cost-of-service impact of the additional $3.55 million would be approximately $500,000–$600,000 per year.
This incremental annual cost of service would increase Ridgeline's proposed recourse rate as follows:
• On the original 100% load factor basis with annual billing determinants of 438,000,000 Dth/yr (based on the system's design capacity of 1,200,000 Dth/d × 365 days): the rate impact would be approximately $0.0012–$0.0014/Dth.
• On the revised 75% load factor basis currently contemplated in the tariff redesign, with annual billing determinants of 328,500,000 Dth/yr (based on 900,000 Dth/d × 365 days): the rate impact would be approximately $0.0016–$0.0018/Dth.
While these per-unit impacts may appear modest in isolation, they represent an unjust burden on Ridgeline's shippers — producers and marketers who would be required to pay higher transportation rates to subsidize interconnection facilities that are necessitated by ATPC's system specifications. Over the life of the interconnection facilities (typically 30–40 years for pipeline facilities), the cumulative impact would be substantial.
Furthermore, the rate impact analysis should be considered in the context of the broader rate case. Ridgeline's proposed recourse rate is $0.2265/Dth on the original filing basis, and every incremental cent per Dth is significant in a competitive transportation market where producers have multiple pipeline options for moving gas from the Marcellus and Utica production areas to downstream markets. An unjustified increase in Ridgeline's recourse rate could undermine Ridgeline's competitive position and reduce system throughput, ultimately harming both Ridgeline and its shippers.
B. Impact on ATPC's System and Shippers
Under the proposed 34.1%/65.9% allocation, ATPC's $14.7 million share of the interconnection facilities costs would be recovered through ATPC's own rate mechanism or absorbed by ATPC as a cost of expanding its system's interconnection infrastructure. The magnitude of ATPC's share should be considered in context:
Enterprise Value Context: ATPC's $14.7 million share represents less than 0.24% of Tidewater Infrastructure Partners LP's estimated enterprise value of approximately $6.1 billion. This is a de minimis capital expenditure in the context of Tidewater's overall asset base and capital investment program. Tidewater, as a major infrastructure platform controlled by the Alderman family, routinely makes capital investments of this magnitude or larger in connection with system expansions, interconnections, and integrity management projects across its portfolio.
System Capacity Context: ATPC's system capacity of 3.8 Bcf/d and 640-mile pipeline network provide ample throughput over which to allocate the $14.7 million in interconnection facilities costs, minimizing the per-unit impact on ATPC's shippers. If ATPC were to roll its $14.7 million share into rate base and recover it through its transportation rates, the per-unit impact on ATPC's billing determinants would be far smaller than the corresponding impact on Ridgeline's billing determinants, given ATPC's substantially larger throughput and rate base.
Clearwater Municipal Gas Authority: CMGA's concern about rate impacts on ATPC's system is understandable but does not support a reallocation of interconnection costs to Ridgeline. The $14.7 million allocation to ATPC, when spread across ATPC's 3.8 Bcf/d system capacity, would have a minimal per-unit rate impact on CMGA's transportation costs. Any rate impact on CMGA would be addressed through ATPC's own rate proceedings, in which CMGA would have the opportunity to contest the magnitude and recovery of the interconnection costs. Reallocating costs to Ridgeline to mitigate rate impacts on ATPC's customers would be an improper cross-subsidization that the Commission's cost-causation doctrine is specifically designed to prevent.
The following table illustrates the relative impact of the interconnection cost allocation on each party's system:
As this comparison demonstrates, the $14.7 million allocation to ATPC is proportionately far less burdensome to ATPC and its shippers than the alternative — requiring Ridgeline to bear an ad

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