MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT / ATTORNEY-CLIENT COMMUNICATION
TO:
Patricia Dunmore, Founder & Chairperson, Dunmore Energy Holdings Ltd. / Billing Partner, Calderwood & Harkness LLP
James K. Winfield, CEO & President, Ridgeline Midstream Services LLC
Dr. Natasha Orlov, Director of Rates & Regulatory, Ridgeline Midstream Services LLC
FROM:
George Trujillo, Responsible Partner, Energy & Infrastructure, Calderwood & Harkness LLP
Brett Callahan, Lead Associate, Energy & Infrastructure, Calderwood & Harkness LLP
DATE: October 28, 2024
RE: Benchmarking Analysis — Ridgeline Midstream Services LLC Proposed Recourse Rate Compared to Comparable FERC-Jurisdictional Interstate Natural Gas Pipelines in the Appalachian Basin
MATTER: C&H Matter No. 1016-00005
DOCKET: FERC Docket Nos. RP22-847-000 (Rate Case) and RP22-847-001 (Interconnection)
This memorandum constitutes a privileged and confidential attorney-client communication and attorney work product. It is prepared in anticipation of litigation and for the purpose of providing legal advice. This memorandum and all attachments are protected from disclosure under the attorney-client privilege, the work-product doctrine, and all other applicable privileges and protections. No portion of this memorandum may be disclosed to any third party without the express written consent of Calderwood & Harkness LLP.
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I. Executive Summary and Purpose
A. Purpose
The purpose of this memorandum is to benchmark the proposed recourse rate of Ridgeline Midstream Services LLC ("Ridgeline" or the "Company") against comparable FERC-jurisdictional interstate natural gas pipelines operating in the Appalachian Basin. This benchmarking analysis is being performed in direct support of the redesigned tariff filing that Ridgeline anticipates submitting to the Federal Energy Regulatory Commission ("FERC" or the "Commission") on or before February 21, 2025, in FERC Docket Nos. RP22-847-000 (Rate Case) and RP22-847-001 (Interconnection). The analysis is intended to provide external, market-based validation for the revised proposed recourse rate and to arm the Ridgeline legal and regulatory team with a factual framework for addressing challenges raised by intervenors and questions posed by the Commission.
B. Procedural Context
By Deficiency Letter dated January 19, 2023, the Commission's Office of Energy Market Regulation raised several substantive questions concerning the reasonableness of Ridgeline's original cost-of-service and rate design as filed on May 12, 2022. Among the most significant items identified in the Deficiency Letter were the following: (i) Deficiency Item 1, questioning the basis for the proposed 14.00% return on equity ("ROE") and requesting a more detailed discounted cash flow ("DCF") proxy group analysis; (ii) Deficiency Item 3, questioning the use of a 100% load factor assumption in light of Ridgeline's actual and projected throughput data, which indicated that actual utilization was significantly below design capacity; and (iii) Deficiency Item 7, requesting a more detailed justification for the allocation of interconnection facility costs between Ridgeline and Appalachian Trunk Pipeline Company, LLC ("ATPC"). In response to these deficiency items, Ridgeline has undertaken a comprehensive redesign of its tariff and rate proposal, the results of which are reflected in the revised rate parameters discussed in this memorandum.
The benchmarking analysis presented herein provides the external, comparative context that the Commission expects to see in support of any proposed recourse rate, particularly for a relatively new pipeline system with limited operating history. By demonstrating that Ridgeline's revised proposed recourse rate falls within the range of rates charged by comparable Appalachian Basin pipelines, this analysis materially strengthens the Company's position in both the regulatory proceeding and any settlement discussions.
C. Summary of Key Finding
Ridgeline's revised proposed recourse rate of $0.3140/Dth (comprised of a reservation component of $0.3102/Dth and a usage component of $0.0038/Dth) falls within the range of recourse rates charged by comparable Appalachian Basin pipelines, though it is above the median. The range of comparable recourse rates observed in this analysis extends from approximately $0.2480/Dth (Marcellus Gateway Pipeline LLC) to approximately $0.3650/Dth (Northern Ridge Interstate Pipeline Inc.), with a median of approximately $0.2920/Dth (Brindoval Gas Transmission LLC) and a mean of approximately $0.3056/Dth. Ridgeline's revised rate falls approximately $0.022/Dth above the median and approximately $0.008/Dth above the mean—within one standard deviation of the mean—and is most closely comparable to the rate of Allegany Valley Pipeline Company LP ($0.3380/Dth), the pipeline that most closely resembles Ridgeline in terms of diameter, length, and design capacity.
The Company's original proposed rate of $0.2265/Dth, by contrast, fell below the range floor and reflected a 100% load factor assumption that was subsequently identified as deficient by the Commission. The shift from a 100% to a 75% load factor assumption is the primary driver of the higher per-unit rate in the revised filing, notwithstanding a reduction in the overall return resulting from the decreased ROE (from 14.00% to 12.50%) and the updated DCF proxy group analysis.
D. Consulting Engagement
This analysis was prepared in coordination with Braswell Energy Consulting Group LLC ("Braswell"), engagement no. BEC-2023-0041, under the direction of Dr. Raymond Braswell. Braswell was retained by Calderwood & Harkness LLP at the direction of Ridgeline to provide expert economic analysis in connection with this proceeding. The analysis draws upon publicly available FERC tariff filings, FERC Form No. 2 annual reports, publicly available rate case decisions, and pipeline infrastructure data compiled by Ridgepoint Appraisal & Valuation Inc. ("Ridgepoint"). All data sources are identified in detail in Appendix C to this memorandum.
E. Intervenor Positions
For context, the following is a brief summary of the principal intervenor positions on the rate issue:
• ATPC and Marcellus Gateway Pipeline Company ("MGPC"): These intervenors have jointly advocated for a rate ceiling of approximately $0.2560/Dth for the Ridgeline system. This position is premised on (i) a proposed ROE of 10.75% (ATPC) or 11.25% (MGPC), significantly below the revised proposed ROE of 12.50%, and (ii) a load factor assumption of 85% or higher. As discussed in detail below, the settlement gap between the parties remains approximately $0.058/Dth ($0.3140 minus $0.2560), and the benchmarking analysis is directly relevant to assessing the reasonableness of both sides' positions.
• The Central Municipal Gas Authority ("CMGA"): CMGA has supported ATPC's cost allocation position with respect to interconnection facilities and has expressed general concern about the potential for rate increases on the ATPC system resulting from the proposed interconnection.
II. Ridgeline Pipeline System — Summary of Key Parameters
A. System Description
Ridgeline Midstream Services LLC operates a 187-mile, 24-inch-diameter high-pressure natural gas pipeline system located in the Appalachian Basin, traversing portions of West Virginia and southwestern Pennsylvania. The system is designed to provide firm and interruptible transportation service for natural gas produced in the prolific Marcellus and Utica shale formations of the region.
The pipeline extends from the Wetzel County Interconnect in Wetzel County, West Virginia (approximate coordinates 39.6120° N, 80.7540° W), where it receives gas from upstream gathering systems and local production facilities, to the Waynesburg Compressor Station in Greene County, Pennsylvania (approximate coordinates 39.8965° N, 80.1810° W), where it delivers gas into the Appalachian Trunk Pipeline Company, LLC ("ATPC") interstate mainline system for further downstream transportation. The pipeline route traverses rugged Appalachian terrain, including multiple river crossings, mountainous topography, and densely wooded areas that contributed to the system's overall construction cost profile.
The system is equipped with three compressor stations—Wetzel Station (located near the Wetzel County Interconnect receipt point), Mannington Station (located approximately 68 miles downstream, near Mannington, West Virginia), and Waynesburg Station (located at the delivery point in Greene County, Pennsylvania)—providing aggregate installed compression of 45,000 horsepower ("HP"). This compression configuration enables the system to maintain maximum operating pressures sufficient to achieve its full design capacity under a range of operating conditions, including during periods of peak winter demand.
The system's design capacity is 1.2 Bcf/d (equivalent to 1,200,000 Dth/d at an assumed BTU content of 1,000 BTU/cf). The system's current throughput is approximately 680 MMcf/d, representing a throughput utilization rate of approximately 56.67% of design capacity. The system was placed into service on October 1, 2021, and has been operating for approximately three years as of the date of this memorandum.
The original construction cost of the Ridgeline pipeline system was $587.2 million, inclusive of pipeline, compressor stations, metering equipment, right-of-way acquisition, environmental mitigation, and related construction expenditures.
B. Original Filed Rate Parameters (May 12, 2022)
In its initial tariff filing submitted to FERC on May 12, 2022, Ridgeline proposed the following rate parameters based on a traditional cost-of-service methodology:
Rate Base. The total rate base as originally filed was $612.40 million, comprised of the following principal components:
• Net plant in service: $563.71 million, reflecting the $587.2 million original construction cost less accumulated depreciation of $23.49 million (representing approximately six months of depreciation at the 2.50% annual depreciation rate applied to a partial first year and the first full year of operations through the test period);
• Working capital allowance: $18.64 million, calculated using the one-eighth of annual operations and maintenance expenses method;
• Accumulated deferred income taxes ("ADIT"): ($12.45 million), reflecting the deferred tax liability associated with accelerated depreciation methods used for income tax purposes relative to the straight-line depreciation used for regulatory purposes;
• Other rate base items: $42.50 million, comprised of gas stored underground and in transit ($28.30 million), prepayments ($6.85 million), and materials and supplies ($7.35 million).
Capital Structure and Cost of Capital. The original filing proposed a capital structure of 55% equity and 45% debt. The proposed ROE was 14.00%, derived from a DCF proxy group analysis. The weighted-average cost of debt was 5.25%, calculated as the weighted average of (i) the Pinnacle National Bank-led $400 million senior secured term loan facility bearing interest at SOFR plus 325 basis points and (ii) the $150 million 7.875% Second Lien Senior Secured Notes. The resulting weighted-average cost of capital ("WACC") was 10.0625%, producing a return on rate base of $61.62 million.
Cost of Service. The total cost of service as originally filed was $97.36 million, inclusive of the return on rate base, operations and maintenance ("O&M") expenses, administrative and general ("A&G") expenses, depreciation, income taxes, and revenue credits.
Billing Determinants and Recourse Rate. The original filing used billing determinants of 438,000,000 Dth per year, derived from a 100% load factor assumption applied to the system's design capacity of 1,200,000 Dth/d. The resulting proposed recourse rate was $0.2265/Dth, comprised of a reservation component of $0.2223/Dth and a usage component of $0.0042/Dth.
C. Revised Rate Parameters (Tariff Redesign, Current Draft)
In response to the Deficiency Letter and based on updated financial and operational data, Ridgeline has prepared a comprehensive redesign of its tariff and rate proposal. The principal changes in the revised rate parameters are as follows:
Return on Equity. The revised proposed ROE is 12.50%, reflecting the updated DCF proxy group analysis prepared by Braswell Energy Consulting Group LLC in the third quarter of 2024. The reduction from 14.00% to 12.50% reflects several factors, including a modestly lower risk premium for natural gas pipelines in the current capital markets environment and the availability of more recent market data for the DCF proxy group companies.
Weighted-Average Cost of Capital. The revised WACC is 9.2375%, calculated as follows: (55% × 12.50%) + (45% × 5.25%) = 6.875% + 2.3625% = 9.2375%.
Return on Rate Base. The revised return on rate base is $56.57 million ($612.40 million × 9.2375%).
Operating Expenses. Revised O&M expenses are $13.92 million, and revised A&G expenses are $5.14 million, reflecting updated actual operating data from the three full years of system operations since the October 1, 2021 in-service date.
Income Tax Allowance. The revised income tax allowance is $15.04 million, reflecting the updated return and the applicable federal and state corporate income tax rates.
Revenue Credits. Revised revenue credits are ($6.00 million), reflecting interruptible transportation revenues, parking and lending service revenues, and other miscellaneous revenue sources that offset the cost of service allocated to firm transportation service.
Total Cost of Service. The revised total cost of service is $103.15 million. Although the revised total cost of service is higher than the original $97.36 million, this increase is attributable to updated O&M and A&G expenses based on actual operating data, partially offset by the reduction in the return on rate base resulting from the lower ROE.
Billing Determinants and Recourse Rate. The revised filing uses billing determinants of 328,500,000 Dth per year, derived from a 75% load factor assumption applied to the system's design capacity of 1,200,000 Dth/d (i.e., 1,200,000 Dth/d × 365 days × 0.75 = 328,500,000 Dth/yr). The resulting revised proposed recourse rate is $0.3140/Dth, comprised of a reservation component of $0.3102/Dth and a usage component of $0.0038/Dth.
Key Driver of Higher Per-Unit Rate. The shift from a 100% to a 75% load factor assumption is the primary driver of the increase in the per-unit recourse rate from $0.2265/Dth to $0.3140/Dth. Specifically, while the revised total cost of service increased by approximately $5.79 million (from $97.36 million to $103.15 million), the billing determinants decreased by approximately 109.5 million Dth (from 438,000,000 Dth to 328,500,000 Dth), resulting in a 25% reduction in the volume over which fixed costs are spread. This 25% reduction in billing determinants, combined with the modest increase in total cost of service, produced the approximately $0.088/Dth increase in the per-unit recourse rate. In essence, the lower overall return achieved through the reduced ROE was more than offset by the impact of spreading costs over a smaller volume base under the revised load factor assumption.
D. Key Metrics for Benchmarking
The following derived metrics provide the basis for the comparative benchmarking analysis presented in Sections IV and V of this memorandum:
These metrics enable meaningful comparison across pipeline systems of varying length, diameter, and capacity, as discussed further in the methodology section below.
III. Benchmarking Methodology
A. Selection of Comparable Pipelines
The identification of comparable pipelines for this benchmarking analysis was guided by a set of six selection criteria designed to ensure that the comparison group is both relevant to Ridgeline's specific characteristics and sufficiently broad to capture the range of rates and operational parameters observed among Appalachian Basin pipelines. The selection criteria are as follows:
1. FERC Jurisdiction. The pipeline must be a FERC-jurisdictional interstate natural gas pipeline, subject to the Commission's ratemaking authority under the Natural Gas Act ("NGA") and the Natural Gas Policy Act of 1978 ("NGPA").
2. Geographic Location. The pipeline must be located primarily in the Appalachian Basin, defined for purposes of this analysis as the states of Pennsylvania, West Virginia, Ohio, and New York. This geographic filter ensures that the comparable pipelines face similar terrain, construction cost environments, regulatory conditions, and market dynamics as Ridgeline.
3. Open-Access Transportation. The pipeline must be operational and providing open-access transportation service under Part 284, Subpart G of the Commission's regulations, 18 C.F.R. Part 284, Subpart G. This requirement excludes Hinshaw pipelines, local distribution companies, and gathering systems that are not subject to FERC's open-access transportation requirements.
4. Design Capacity. The pipeline must have a design capacity of between 500 MMcf/d and 5.0 Bcf/d. This range is broad enough to capture systems that are meaningfully comparable to Ridgeline's 1.2 Bcf/d design capacity while excluding both very small intrastate systems and very large transcontinental pipeline systems whose cost structures and market dynamics are fundamentally different.
5. Vintage. The pipeline system must have been placed in service or undergone a significant capacity expansion within the past 15 years (i.e., since approximately 2009). This requirement ensures that the comparable group reflects contemporary construction costs, financing terms, and regulatory standards, rather than legacy systems whose rate bases have been substantially depreciated over many decades.
6. Data Availability. Publicly filed tariff data and FERC Form No. 2 annual report data must be available for the pipeline, sufficient to derive the key metrics required for the benchmarking comparison.
Applying these criteria, the analysis identified five comparable pipelines, all operating in the Appalachian Basin:
1. Appalachian Trunk Pipeline Company, LLC ("ATPC") — a 640-mile system with a design capacity of 3.8 Bcf/d, operating in Pennsylvania and adjoining states. ATPC is the interconnecting pipeline in this proceeding.
2. Brindoval Gas Transmission LLC ("Brindoval") — a 312-mile, 30-inch system serving Pennsylvania and Ohio markets.
3. Allegany Valley Pipeline Company LP ("Allegany Valley") — a 198-mile, 24-inch system running from northern West Virginia to southwestern New York. Allegany Valley is the most directly comparable system to Ridgeline in terms of diameter, length, and design capacity.
4. Marcellus Gateway Pipeline LLC ("Marcellus Gateway" or "MGPC") — a 245-mile, 36-inch system operating in Pennsylvania and New Jersey, with a design capacity of 2.1 Bcf/d.
5. Northern Ridge Interstate Pipeline Inc. ("Northern Ridge") — a 156-mile, 20-inch system operating in Pennsylvania, with a design capacity of 750 MMcf/d.
Data Sources. The data used in this benchmarking analysis was drawn from the following publicly available sources: (i) tariff filings posted on the FERC eLibrary, including initial rate filings, rate case filings, negotiated rate filings, and tariff amendments; (ii) FERC Form No. 2 annual reports filed by each comparable pipeline; (iii) publicly available FERC orders and decisions in rate case proceedings involving the comparable pipelines; and (iv) the Ridgepoint Appraisal & Valuation Inc. pipeline infrastructure database, which compiles physical and financial data for FERC-jurisdictional pipelines. Specific docket numbers and filing dates are provided in Appendix C.
B. Metrics Used for Comparison
The benchmarking analysis compares Ridgeline and the five comparable pipelines across a comprehensive set of financial, operational, and rate-design metrics. The full set of metrics used in the comparison is as follows:
• Recourse rate ($/Dth) — the total recourse rate, inclusive of both the reservation component and the usage component, as approved or proposed in the pipeline's most recent rate case or initial tariff filing.
• Recourse rate normalized per 100 miles ($/Dth per 100 miles) — the total recourse rate adjusted for differences in pipeline length, calculated as (recourse rate ÷ system length in miles) × 100. This metric provides a more meaningful comparison across systems of different lengths, as longer pipelines would be expected to charge higher total rates to reflect the greater distance over which gas is transported.
• Rate base (total and per mile) — the total rate base as filed or approved, and the rate base divided by system length.
• Total cost of service (total and per mile) — the total annual cost of service and the cost of service divided by system length.
• Design capacity (Dth/d) — the maximum design capacity of the pipeline system.
• Throughput utilization (%) — actual throughput as a percentage of design capacity.
• Load factor assumption used in rate design (%) — the load factor percentage used to derive billing determinants in the pipeline's rate design.
• Return on equity (ROE) — the approved or proposed ROE.
• Capital structure (equity/debt ratio) — the equity-to-debt ratio used in the rate design.
• Weighted-average cost of capital (WACC) — the WACC derived from the capital structure, ROE, and cost of debt.
• Depreciation rate (%) — the annual straight-line depreciation rate applied to the pipeline's gross plant in service.
• Pipeline diameter and length — the physical dimensions of the pipeline mainline.
• In-service date or last major rate case — the date on which the pipeline was placed in service or the date of the most recent rate case filing or order, as applicable.
C. Normalization Adjustments
To ensure meaningful comparability across pipeline systems with different physical and financial characteristics, the analysis applies the following normalization adjustments:
Distance Normalization. All recourse rates are normalized to a per-100-mile basis. This adjustment accounts for differences in pipeline length among the comparable systems, which range from 156 miles (Northern Ridge) to 640 miles (ATPC). A pipeline spanning a longer distance would be expected to charge a higher total recourse rate to cover the greater capital investment and operating costs associated with a longer system. The per-100-mile metric isolates the rate per unit of transportation distance, enabling more direct comparison.
Diameter and Capacity-Weighted Normalization. Rates are further adjusted for differences in pipeline diameter using a capacity-weighted normalization factor. Larger-diameter pipelines achieve lower per-unit transportation costs due to economies of scale—a 36-inch pipeline has significantly more throughput capacity per unit of steel and per mile of right-of-way than a 20-inch pipeline. The capacity-weighted normalization factor adjusts for this relationship by weighting each pipeline's rate by the ratio of its capacity to Ridgeline's capacity. This adjustment is discussed in the context of the comparative analysis in Section V.
Load Factor Normalization. Where a comparable pipeline uses a different load factor assumption in its rate design than the 75% load factor proposed by Ridgeline, the analysis recalculates the implied recourse rate at both 75% and 100% load factors for the purpose of apples-to-apples comparison. This is accomplished by applying the comparable pipeline's total cost of service to the billing determinants that would result from the alternative load factor assumption, holding all other variables constant. This normalization is essential because load factor is one of the most significant variables in determining the per-unit recourse rate, and the comparable pipelines use load factor assumptions ranging from 75% to 90%.
Time Value Adjustments. Cost-of-service data from older rate cases is adjusted to current-year dollars using the GDP Implicit Price Deflator published by the Bureau of Economic Analysis, where applicable. This adjustment is most relevant for ATPC and Brindoval, whose most recent rate cases predate Ridgeline's filing by several years. The time-value adjustment ensures that cost-of-service figures are expressed in comparable dollar terms.
Fuel-Use Retention. No adjustment has been made for differences in fuel-use retention percentages among the comparable pipelines. Fuel-use retention is an additional cost borne by shippers but is typically reported and analyzed separately from the recourse rate. Fuel-use retention percentages for the comparable pipelines are reported separately where available.
IV. Comparable Pipeline Profiles
This section provides detailed profiles of each of the five comparable pipelines identified in the benchmarking analysis. Each profile summarizes the pipeline's physical characteristics, financial parameters, regulatory history, and key rate metrics.
A. Appalachian Trunk Pipeline Company, LLC (ATPC)
FERC Code: 840117
System Overview. ATPC operates a 640-mile interstate natural gas pipeline system consisting of 30-inch and 36-inch mainline segments, with a design capacity of 3.8 Bcf/d. The system is one of the largest interstate natural gas pipelines in the Appalachian Basin and serves as a critical conduit for Marcellus and Utica shale production, connecting major production areas in West Virginia and Pennsylvania with downstream markets in the Mid-Atlantic and Northeast regions.
Principal Office. 2200 Penn Center West, Suite 300, Pittsburgh, Pennsylvania 15276.
Ownership. ATPC is a wholly owned subsidiary of Tidewater Infrastructure Partners LP, a private infrastructure investment partnership. Harrison J. Alderman serves as Chairman and Marcus R. Alderman serves as President and Chief Executive Officer of Tidewater Infrastructure Partners LP. The estimated enterprise value of ATPC and its affiliated pipeline assets is approximately $6.1 billion.
EIN: 25-1987643.
Regulatory and Rate Data.
Legal Representation. ATPC is represented by Kellner, Royce & Dillard LLP, with William Pratt serving as Senior Partner and lead counsel in this proceeding.
Relevance to This Analysis. ATPC occupies a unique position in this benchmarking analysis. It is both a member of the comparable group and an active intervenor in the Ridgeline rate case proceeding. ATPC is the interconnecting pipeline—i.e., the downstream system into which Ridgeline delivers gas at the Waynesburg Compressor Station—and has a direct financial interest in the outcome of the rate case, both because ATPC's shippers will bear the cost of Ridgeline's recourse rate for upstream transportation and because ATPC and Ridgeline are negotiating the allocation of approximately $22.3 million in interconnection facility costs. ATPC's own approved recourse rate of $0.2850/Dth, at a 90% load factor and 11.50% ROE, serves as a useful reference point but must be interpreted in light of ATPC's substantially larger scale (640 miles, 3.8 Bcf/d), which confers significant economies of scale and results in a much lower per-100-mile rate ($0.0445/Dth per 100 miles) than would be achievable by a smaller system like Ridgeline.
ATPC has argued in its intervention that Ridgeline's proposed recourse rate is excessive relative to ATPC's own rate. However, as the benchmarking data makes clear, the comparison between ATPC's total recourse rate and Ridgeline's total recourse rate is misleading without normalization for the dramatic difference in system length (640 miles versus 187 miles) and capacity (3.8 Bcf/d versus 1.2 Bcf/d).
B. Brindoval Gas Transmission LLC
System Overview. Brindoval Gas Transmission LLC operates a 312-mile, 30-inch mainline interstate natural gas pipeline system serving markets in Pennsylvania and Ohio. The system's most recent capacity expansion was completed in 2017, bringing the system's design capacity to 1.8 Bcf/d. Brindoval provides firm and interruptible transportation service under FERC-approved tariff rates and has been a reliable and consistently utilized system since the expansion.
Markets Served. Pennsylvania and Ohio.
In-Service Date (Most Recent Expansion). 2017.
Regulatory and Rate Data.
Relevance to This Analysis. Brindoval is a mid-sized Appalachian Basin pipeline with a capital structure and depreciation rate identical to Ridgeline's proposed parameters. Its approved recourse rate of approximately $0.2920/Dth represents the median of the comparable group. Brindoval's cost of service per mile ($0.571 million/mile) is closely comparable to Ridgeline's revised cost of service per mile ($0.552 million/mile). However, Brindoval's larger diameter (30-inch versus 24-inch) and greater capacity (1.8 Bcf/d versus 1.2 Bcf/d) provide some economies of scale not available to Ridgeline, which partially explains Brindoval's lower per-100-mile rate despite a similar per-mile cost of service.
C. Allegany Valley Pipeline Company LP
System Overview. Allegany Valley Pipeline Company LP operates a 198-mile, 24-inch mainline interstate natural gas pipeline extending from northern West Virginia to southwestern New York. The system was placed in service in 2019 and has a design capacity of 1.0 Bcf/d. Among the comparable pipelines in this analysis, Allegany Valley is the system most directly comparable to Ridgeline in terms of pipeline diameter (24-inch), system length (198 miles versus 187 miles), and design capacity (1.0 Bcf/d versus 1.2 Bcf/d).
Markets Served. Northern West Virginia to southwestern New York.
In-Service Date. 2019.
Regulatory and Rate Data.
Relevance to This Analysis. Allegany Valley is the most important comparable in this benchmarking analysis because of its close physical resemblance to Ridgeline. Both systems are 24-inch pipelines of approximately 200 miles in length, with design capacities near 1.0 Bcf/d. Allegany Valley's approved recourse rate of approximately $0.3380/Dth is higher than Ridgeline's revised proposed rate of $0.3140/Dth, notwithstanding that Allegany Valley's cost of service per mile ($0.495 million/mile) is slightly lower than Ridgeline's ($0.552 million/mile). This apparent discrepancy is explained by Allegany Valley's use of an 80% load factor (compared to Ridgeline's 75%) and its modestly higher ROE of 12.75%. Allegany Valley's rate per 100 miles ($0.1707/Dth per 100 miles) is nearly identical to Ridgeline's ($0.1679/Dth per 100 miles), confirming the close comparability of the two systems on a distance-normalized basis.
Allegany Valley's throughput utilization of approximately 61% is also in a similar range to Ridgeline's 56.67%, suggesting that both systems are still in the process of ramping toward their design capacities, consistent with their relatively recent in-service dates (2019 and 2021, respectively).
D. Marcellus Gateway Pipeline LLC
System Overview. Marcellus Gateway Pipeline LLC operates a 245-mile, 36-inch mainline interstate natural gas pipeline serving markets in Pennsylvania and New Jersey. The system was placed in service in 2018 and has a design capacity of 2.1 Bcf/d. Marcellus Gateway is a larger-diameter and higher-capacity system that benefits from significant economies of scale and high throughput utilization.
Markets Served. Pennsylvania and New Jersey.
In-Service Date. 2018.
Regulatory and Rate Data.
Relevance to This Analysis. Marcellus Gateway represents the lower end of the comparable rate range, with an approved recourse rate of approximately $0.2480/Dth. This lower rate is attributable to several factors that differentiate Marcellus Gateway from Ridgeline: (i) a larger 36-inch diameter mainline, which provides significantly more capacity per mile of pipeline and lower per-unit transportation costs; (ii) a 90% load factor assumption, which spreads costs over a larger billing determinant base; (iii) a 50/50 capital structure with a lower WACC of approximately 8.58%; and (iv) a throughput utilization of approximately 88%, which is among the highest in the comparable group and reflects the system's strong contractual position with high levels of firm capacity commitments.
Notwithstanding its lower recourse rate, Marcellus Gateway's cost of service per mile ($0.878 million/mile) is the highest in the comparable group, reflecting the significantly higher capital cost of constructing a 36-inch pipeline ($8.57 million/mile in rate base). The lower per-unit recourse rate is achieved by spreading this higher total cost over a much larger capacity and billing determinant base. This illustrates the fundamental point that total recourse rates must be interpreted in the context of system size, capacity, and load factor, rather than as simple dollar-to-dollar comparisons.
E. Northern Ridge Interstate Pipeline Inc.
System Overview. Northern Ridge Interstate Pipeline Inc. operates a 156-mile, 20-inch mainline interstate natural gas pipeline system in Pennsylvania. The system was placed in service in 2020 and has a design capacity of 750 MMcf/d (750,000 Dth/d). Northern Ridge is the smallest system in the comparable group by both diameter and capacity and is currently the subject of a pending rate case before the Commission.
Markets Served. Pennsylvania.
In-Service Date. 2020.
Regulatory and Rate Data.
Relevance to This Analysis. Northern Ridge represents the upper end of the comparable rate range, with a proposed recourse rate of approximately $0.3650/Dth. This higher rate reflects several factors: (i) a smaller 20-inch pipeline diameter, which results in lower capacity per mile and reduced economies of scale compared to 24-inch and larger systems; (ii) a 75% load factor assumption, the same conservative assumption proposed by Ridgeline; (iii) a proposed ROE of 13.00%, the highest in the comparable group; and (iv) a throughput utilization of only approximately 52%, the lowest in the comparable group, consistent with Northern Ridge's recent in-service date and early-stage operations.
The comparison between Northern Ridge and Ridgeline is instructive. Both systems use a 75% load factor assumption and have similar capital structures (55/45 equity/debt). However, Ridgeline's larger diameter (24-inch versus 20-inch), greater capacity (1.2 Bcf/d versus 0.75 Bcf/d), and longer system length (187 miles versus 156 miles) provide somewhat greater economies of scale, which are reflected in Ridgeline's lower recourse rate ($0.3140/Dth versus $0.3650/Dth) and lower rate per 100 miles ($0.1679/Dth per 100 miles versus $0.2340/Dth per 100 miles). Northern Ridge's proposed rate is currently pending before the Commission and has not yet been approved or settled.
V. Comparative Analysis
This section presents a side-by-side comparative analysis of Ridgeline and the five comparable pipelines across each of the key benchmarking metrics. The analysis demonstrates that Ridgeline's revised proposed recourse rate falls within the range of comparable pipeline rates, and that Ridgeline's underlying cost-of-service and rate-design parameters are consistent with industry norms for Appalachian Basin pipelines.
A. Recourse Rate Comparison ($/Dth)
The following table summarizes the recourse rates for all five comparable pipelines, together with Ridgeline's original and revised proposed rates:
Range of Comparable Rates. The range of comparable recourse rates extends from approximately $0.2480/Dth (Marcellus Gateway) to approximately $0.3650/Dth (Northern Ridge), a spread of approximately $0.1170/Dth.
Median. The median of the five comparable recourse rates is approximately $0.2920/Dth (Brindoval).
Mean. The mean of the five comparable recourse rates is approximately $0.3056/Dth, calculated as ($0.2480 + $0.2850 + $0.2920 + $0.3380 + $0.3650) ÷ 5 = $1.5280 ÷ 5 = $0.3056.
Ridgeline Original ($0.2265/Dth). The original proposed recourse rate of $0.2265/Dth falls below the range floor established by the comparable group. As noted above, this below-market rate was an artifact of the 100% load factor assumption used in the original rate design—an assumption that the Commission's Deficiency Letter identified as unsupported by Ridgeline's actual and projected throughput data.
Ridgeline Revised ($0.3140/Dth). The revised proposed recourse rate of $0.3140/Dth falls within the comparable range and is positioned above the median ($0.2920/Dth) but below the upper end of the range ($0.3650/Dth). Ridgeline's revised rate is approximately $0.022/Dth (7.5%) above the median and approximately $0.008/Dth (2.7%) above the mean. From a statistical perspective, the revised rate falls within one standard deviation of the mean of the comparable group, which is a strong indicator of reasonableness.
Closest Comparable. Ridgeline's revised rate is most closely comparable to the Allegany Valley rate of approximately $0.3380/Dth. As discussed in Section IV.C above, Allegany Valley is the most analogous system in the comparable group by pipeline diameter (24-inch), system length (198 miles versus 187 miles), design capacity (1.0 Bcf/d versus 1.2 Bcf/d), and vintage (2019 in-service date versus 2021). The fact that Ridgeline's proposed rate is approximately $0.024/Dth (7.1%) below the rate approved for the most directly comparable pipeline is a strong indicator of rate reasonableness.
Intervenor Proposals. The ATPC/MGPC proposed rate ceiling of approximately $0.2560/Dth would place Ridgeline's rate below the 25th percentile of the comparable group. Only Marcellus Gateway's rate ($0.2480/Dth) would be lower, and Marcellus Gateway is a substantially larger system (36-inch diameter, 2.1 Bcf/d capacity, 88% utilization) with fundamentally different economics. A rate of $0.2560/Dth would position Ridgeline alongside the largest and most highly utilized systems in the region, notwithstanding that Ridgeline is a smaller, newer system still ramping toward full capacity.
B. Rate Normalized Per 100 Miles ($/Dth per 100 miles)
The per-100-mile normalization adjusts the total recourse rate for differences in pipeline length, providing a more meaningful comparison across systems of different distances:
Range. The range of per-100-mile rates extends from approximately $0.0445/Dth per 100 miles (ATPC) to approximately $0.2340/Dth per 100 miles (Northern Ridge).
Analysis. When normalized for distance, Ridgeline's revised rate of approximately $0.1679/Dth per 100 miles falls between Allegany Valley ($0.1707/Dth per 100 miles) and Brindoval ($0.0936/Dth per 100 miles), and is notably closer to Allegany Valley—the most physically similar system. The near-identity of the per-100-mile rates for Ridgeline and Allegany Valley ($0.1679 versus $0.1707, a difference of only $0.0028/Dth per 100 miles, or 1.6%) provides strong validation that Ridgeline's revised rate is consistent with the rates of comparable 24-inch Appalachian Basin pipeline systems.
The very low per-100-mile rate for ATPC ($0.0445/Dth per 100 miles) reflects the substantial economies of scale inherent in ATPC's 640-mile, 3.8 Bcf/d system. A system of that length and capacity achieves much lower per-unit costs by spreading fixed costs over a very large throughput and distance base. ATPC's per-100-mile rate is not a meaningful benchmark for a 187-mile, 1.2 Bcf/d system.
This metric demonstrates that on a distance-normalized basis, Ridgeline's proposed rate is reasonable and reflective of the cost characteristics of a 24-inch system operating in the Appalachian Basin.
C. Rate Base Per Mile Comparison
Range. Rate base per mile ranges from approximately $2.63 million/mile (Northern Ridge) to approximately $8.57 million/mile (Marcellus Gateway).
Analysis. Ridgeline's rate base per mile of approximately $3.274 million/mile is in the lower-middle portion of the comparable range. This metric reflects the relatively efficient construction cost of the Ridgeline system—$587.2 million for 187 miles of 24-inch pipeline—which compares favorably to the per-mile rate base of larger-diameter systems. Ridgeline's rate base per mile is closely comparable to Allegany Valley ($3.66 million/mile), the most physically similar system, and is well below the rate base per mile for ATPC ($6.56 million/mile), Brindoval ($5.93 million/mile), and Marcellus Gateway ($8.57 million/mile), all of which are larger-diameter systems with proportionally higher per-mile capital costs.
The lower rate base per mile for Northern Ridge ($2.63 million/mile) reflects the smaller 20-inch diameter of that system, which requires less steel and narrower rights-of-way per mile, resulting in lower per-mile construction costs but also lower per-mile capacity.
D. Cost of Service Per Mile Comparison
Range. Cost of service per mile ranges from approximately $0.462 million/mile (Northern Ridge) to approximately $0.898 million/mile (ATPC).
Analysis. Ridgeline's revised cost of service per mile of approximately $0.552 million/mile is moderate, falling near the midpoint of the comparable range. It is closely comparable to Brindoval ($0.571 million/mile) and slightly above Allegany Valley ($0.495 million/mile). The increase from the original COS per mile ($0.521 million/mile) to the revised figure ($0.552 million/mile) reflects updated O&M and A&G expenses based on three years of actual operating data, as well as changes to the income tax allowance, partially offset by the reduced return on rate base. The larger-diameter systems (ATPC and Marcellus Gateway) have higher COS per mile, reflecting the greater capital and operating costs associated with larger pipeline infrastructure, even though their per-unit rates may be lower due to economies of scale.
E. Throughput Utilization Comparison
Range. Throughput utilization ranges from approximately 52% (Northern Ridge) to approximately 88% (Marcellus Gateway).
Analysis. Ridgeline's throughput utilization of approximately 56.67% is in the lower portion of the comparable range but is consistent with systems in their early operating years. Ridgeline was placed in service on October 1, 2021, and has been operational for approximately three years as of the date of this memorandum. Both Allegany Valley (in service 2019, 61% utilization) and Northern Ridge (in service 2020, 52% utilization) exhibit similar utilization patterns, reflecting the ramp-up period required for new pipeline systems to build shipper commitments and achieve higher throughput levels.
By contrast, the higher-utilization systems in the comparable group—ATPC at 82%, Brindoval at 74%, and Marcellus Gateway at 88%—are more mature systems that have had longer periods to build shipper commitments and achieve higher sustained throughput levels. These higher-utilization systems tend to have lower per-unit recourse rates because their fixed costs are spread over a larger throughput base, both in rate design (through higher load factor assumptions) and in actual operations.
This comparison supports the reasonableness of Ridgeline's revised 75% load factor assumption. With actual throughput utilization of only 56.67%, a 100% load factor assumption—as used in the original filing—was clearly unrealistic. The revised 75% load factor implies that Ridgeline expects demand to grow from current levels (approximately 680 MMcf/d, or 56.67% of capacity) to approximately 900 MMcf/d (75% of capacity) over the rate design period. This is a growth assumption that is ambitious but not unreasonable for a system in its early operating years, and is consistent with the load factor assumption used by Northern Ridge, the most comparable system by vintage.
F. Load Factor Comparison
Range. Load factor assumptions used in the comparable pipelines' rate designs range from 75% (Northern Ridge) to 90% (ATPC and Marcellus Gateway).
Median. The median load factor assumption among the comparable pipelines is 85% (Brindoval).
Analysis. Ridgeline's revised load factor assumption of 75% is at the lower end of the comparable range, equal to the assumption used by Northern Ridge. The original 100% load factor assumption was above the range of any comparable pipeline and, as noted, was identified as deficient by the Commission. The intervenors (ATPC, MGPC, and CMGA) advocate for a load factor of 85% or higher for Ridgeline, which would align with the Brindoval assumption and approach the assumptions used by ATPC and Marcellus Gateway.
Impact of Load Factor on Rate. The load factor assumption has a significant and direct impact on the per-unit recourse rate. To illustrate this relationship, the following calculation demonstrates the effect of applying an 85% load factor to Ridgeline's revised cost of service:
At 85% load factor: $103.15M ÷ (1,200,000 Dth/d × 365 × 0.85) = $103.15M ÷ 372,300,000 Dth = approximately $0.2771/Dth
At an 85% load factor, Ridgeline's revised rate would be approximately $0.2771/Dth—below both Brindoval ($0.2920/Dth at 85%) and ATPC ($0.2850/Dth at 90%), and close to the median of the comparable group. The full sensitivity of Ridgeline's rate to different load factor assumptions is presented in Section VII.A below.
FERC Precedent on Load Factor. The Commission has addressed the selection of load factor assumptions for new pipeline systems with limited operating history in several precedent decisions. In general, the Commission has recognized that new pipelines may require a period of several years to ramp to full capacity and that the use of a load factor assumption significantly higher than actual throughput utilization may result in under-recovery of the pipeline's cost of service, potentially jeopardizing the pipeline's financial viability and its ability to attract the capital necessary to maintain safe and reliable service. At the same time, the Commission has cautioned against overly conservative load factor assumptions that would result in excessive per-unit rates that exceed the rates of comparable systems. In this context, Ridgeline's 75% load factor assumption represents a conservative but supportable choice that acknowledges the system's limited operating history and ramp-up trajectory, while the intervenors' proposed 85% assumption may be premature given Ridgeline's current 56.67% utilization.
G. Return on Equity Comparison
Range. The range of approved and proposed ROEs for the comparable pipelines extends from 11.50% (ATPC) to 13.00% (Northern Ridge).
Median. The median ROE is 12.00% (Brindoval).
Mean. The mean ROE is approximately 12.21%, calculated as (11.50% + 11.80% + 12.00% + 12.75% + 13.00%) ÷ 5 = 61.05% ÷ 5 = 12.21%.
Ridgeline Revised Proposed ROE (12.50%). Ridgeline's revised proposed ROE of 12.50% is above the median (12.00%) and the mean (12.21%) of the comparable group but falls comfortably within the observed range. The 12.50% ROE is positioned between Brindoval (12.00%) and Allegany Valley (12.75%), two systems that are among the most comparable to Ridgeline.
Ridgeline Original Proposed ROE (14.00%). The original proposed ROE of 14.00% was above the upper end of the comparable range and contributed to the Commission's concerns expressed in Deficiency Item 1. The reduction from 14.00% to 12.50% represents a meaningful concession by Ridgeline and brings the proposed ROE into alignment with the range of approved and proposed ROEs for comparable pipelines.
Intervenor Proposals.
• ATPC's proposed ROE for Ridgeline (10.75%): This proposed ROE is 75 basis points below the ROE approved for ATPC itself (11.50%) and is below the range of approved ROEs for every comparable pipeline in the benchmarking analysis. ATPC has not provided a persuasive justification for why Ridgeline's equity investors should receive a return lower than the return approved for ATPC's own equity investors, particularly given that Ridgeline is a newer system with potentially higher risk.
• MGPC's proposed ROE for Ridgeline (11.25%): This proposed ROE is at the very low end of the comparable range, below ATPC's own approved ROE and tied with no other comparable system. While less extreme than ATPC's 10.75% proposal, the 11.25% ROE remains difficult to justify in the context of the comparable group data.
Conclusion. Ridgeline's revised proposed ROE of 12.50% is supportable based on the comparable group data. It is within the observed range, modestly above the median, and consistent with the updated DCF proxy group analysis prepared by Braswell Energy Consulting Group LLC. The intervenors' proposed ROEs of 10.75% and 11.25% are below the range of approved returns for comparable Appalachian Basin pipelines and do not reflect the risk profile of a newer pipeline system with limited operating history.
H. Capital Structure and WACC Comparison
Note: WACC values for Allegany Valley and Northern Ridge reflect the published data as reported in their respective FERC filings; minor differences from mechanical calculation may reflect rounding or different cost-of-debt figures in the underlying filings.
Capital Structure Range. Capital structures range from 50/50 equity-debt (ATPC, Marcellus Gateway) to 55/45 equity-debt (Ridgeline, Brindoval, Northern Ridge). Allegany Valley's 52/48 structure falls in between.
WACC Range. The WACC range extends from approximately 8.58% (Marcellus Gateway) to approximately 9.53% (Northern Ridge, as reported in its filing).
Analysis. Ridgeline's revised WACC of 9.2375% falls within the observed range and is consistent with its 55/45 capital structure, 12.50% ROE, and 5.25% cost of debt. The cost of debt reflects the weighted-average interest cost of Ridgeline's two principal debt instruments: (i) the Pinnacle National Bank-led $400 million senior secured term loan facility, bearing interest at SOFR plus 325 basis points, and (ii) the $150 million 7.875% Second Lien Senior Secured Notes held by Harborview Capital Management LLC and Sentinel Ridge Fund LP. The weighted-average cost of debt of 5.25% is within the range of debt costs observed for the comparable pipelines and reflects current market conditions for pipeline project finance debt.
I. Depreciation Rate Comparison
Range. Depreciation rates range from 2.22% (ATPC, Marcellus Gateway) to 2.86% (Northern Ridge).
Analysis. Ridgeline's depreciation rate of 2.50% is within the observed range and is identical to the rates used by Brindoval and Allegany Valley, the two systems that are among the most comparable to Ridgeline. The 2.50% rate implies a useful life of 40 years, which is consistent with FERC's general guidance for natural gas pipeline systems and with the depreciation rates commonly approved for Appalachian Basin pipelines. Ridgeline's resulting annual depreciation expense of approximately $14.68 million (2.50% × $587.2 million historical cost) is reasonable relative to the size and value of the pipeline asset.
Northern Ridge's slightly higher depreciation rate of 2.86% (implying a useful life of approximately 35 years) may reflect that system's smaller diameter and the view that smaller-diameter pipelines may have somewhat shorter economic useful lives. ATPC's and Marcellus Gateway's lower rate of 2.22% (implying a useful life of approximately 45 years) is consistent with the longer expected economic life of large-diameter trunk line systems.
VI. Implications for Intervenor Positions
The benchmarking analysis presented in this memorandum has direct and significant implications for the positions advanced by each of the principal intervenors in this proceeding. This section assesses each intervenor's rate-related arguments in light of the comparable pipeline data.
A. ATPC Position
Appalachian Trunk Pipeline Company, LLC, represented by Kellner, Royce & Dillard LLP (William Pratt, Senior Partner), has taken the most aggressive position among the intervenors with respect to Ridgeline's proposed rate. ATPC's principal rate-related positions are as follows:
ROE. ATPC proposes an ROE of 10.75% for Ridgeline. As demonstrated in Section V.G above, this proposed ROE is below the ROE approved for every pipeline in the comparable group, including ATPC's own approved ROE of 11.50%. It is 175 basis points below Ridgeline's revised proposal and 75 basis points below the lowest approved comparable ROE. The ATPC proposal would, if adopted, require Ridgeline's equity investors to accept a return lower than the return approved for any other comparable pipeline in the region—a position that is difficult to reconcile with the Commission's cost-of-service ratemaking principles, which seek to provide pipelines with a reasonable opportunity to earn a return sufficient to attract capital and maintain creditworthiness.
Interconnection Cost Allocation. ATPC advocates for a 50/50 split of the approximately $22.3 million in total interconnection facility costs ($11.15 million each), whereas Ridgeline has proposed a 34.1/65.9 split ($7.6 million to Ridgeline and $14.7 million to ATPC). The interconnection cost allocation is a separate issue from the recourse rate benchmarking and is addressed in the Interconnection Facilities Cost Allocation memorandum. However, to the extent that a larger allocation to Ridgeline would increase Ridgeline's rate base and thus its recourse rate, ATPC's position on interconnection costs is in tension with its simultaneous argument for a lower Ridgeline recourse rate.