1016-00005 · Dunmore Energy Holdings · Regulatory Strategy & Legal Analysis

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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

TO: Patricia Dunmore, Billing Partner; George Trujillo, Responsible Partner

FROM: Brett Callahan, Lead Associate; David Stanton, Working Associate

DATE: May 2022

RE: Analysis of Natural Gas Act § 4 Filing Requirements Applicable to Ridgeline Midstream Services LLC Initial Tariff Rate Filing — FERC Docket Nos. RP22-847-000 and RP22-847-001

C&H MATTER NO.: 1016-00005

CLIENT: Dunmore Energy Holdings Ltd. / Ridgeline Midstream Services LLC

I. Executive Summary and Purpose

This memorandum analyzes the legal standards governing Ridgeline Midstream Services LLC’s initial tariff rate filing under Section 4 of the Natural Gas Act, 15 U.S.C. § 717c, and the Federal Energy Regulatory Commission’s implementing regulations at 18 C.F.R. Part 154. Ridgeline’s filing concerns its proposed open-access interstate natural gas transportation service on the Ridgeline Pipeline System and its proposed FERC Gas Tariff, Original Volume No. 1.

Ridgeline filed its application on May 12, 2022, seeking Commission approval of an initial recourse rate of $0.2265 per Dth, consisting of a reservation component of $0.2223 per Dth and a usage component of $0.0042 per Dth, for interstate transportation service on the Ridgeline Pipeline System. The filing was submitted in Docket No. RP22-847-000. Ridgeline also seeks authorization related to its interconnection with Appalachian Trunk Pipeline Company, LLC at the Wetzel County Interconnect, which has been docketed as RP22-847-001.

The proposed rate was supported by a filed total cost of service of $97.36 million and a rate base of $612.40 million. The filing was presented as an initial tariff and initial rate filing for service under Ridgeline’s FERC Gas Tariff, Original Volume No. 1, rather than as a rate change to an established Commission-approved tariff rate.

This memorandum addresses six principal issues:

1. the statutory framework under NGA § 4;

2. the burden of proof applicable to initial rate filings;

3. the presumption of reasonableness and its limits in the initial-rate context;

4. the applicable FERC regulatory requirements under 18 C.F.R. Parts 154, 157, and 284;

5. the cost-of-service methodology standards applicable to new pipelines; and

6. the implications of those standards for Ridgeline’s filing and litigation strategy.

Although the filing was made in May 2022, this memorandum also reflects subsequent procedural developments in the docket, including the September 22, 2022 Track II procedural schedule, the appointment of Administrative Law Judge Clara Whitfield, the January 19, 2023 FERC deficiency letter, the February 6, 2023 stay of the proceeding, Ridgeline’s March 15, 2023 partial response, and the current redesign process being led by Braswell Energy Consulting Group LLC.

The core conclusion is straightforward: because Ridgeline is making an initial NGA § 4 tariff rate filing, it bears the burden of demonstrating that its proposed rates, rate design, tariff terms, and interconnection-related provisions are just and reasonable and not unduly discriminatory or preferential. Ridgeline cannot rely on an existing Commission-approved rate as a baseline. The redesigned tariff and supplemental testimony therefore must build the record from the ground up, with particular emphasis on rate base support, return on equity, capital structure, load factor, billing determinants, tariff compliance, open-access provisions, and interconnection cost allocation.

II. Statutory Framework — Natural Gas Act § 4

A. Text and Scope of NGA § 4

Section 4 of the Natural Gas Act is the principal statutory provision governing rates, charges, classifications, and tariff terms filed by jurisdictional natural gas companies. It establishes the foundational “just and reasonable” standard and imposes a filing obligation on natural gas companies subject to FERC jurisdiction.

Section 4(a) provides, in substance, that all rates and charges made, demanded, or received by a natural gas company for or in connection with the transportation or sale of natural gas subject to the jurisdiction of the Commission, and all rules and regulations affecting or pertaining to such rates or charges, must be just and reasonable. Any rate or charge that is not just and reasonable is declared unlawful. Section 4(a) also prohibits rates, charges, rules, regulations, practices, and contracts that are unduly discriminatory or preferential.

Section 4(c) requires natural gas companies to file with the Commission schedules showing all rates and charges for jurisdictional transportation or sales, together with classifications, practices, contracts, and regulations affecting those rates and charges. These schedules must be kept open for public inspection, reflecting the NGA’s broader filed-rate regime. The purpose of the filing requirement is to ensure transparency and to prevent jurisdictional pipelines from imposing rates or terms not filed with and subject to review by the Commission.

Section 4(d) requires advance notice of rate or tariff changes. A natural gas company may not change a filed rate, charge, classification, or service term except after thirty days’ notice to the Commission and the public, unless the Commission permits the change to become effective on shorter notice for good cause shown.

Section 4(e) authorizes the Commission, upon the filing of a rate or tariff change, to enter upon a hearing concerning the lawfulness of the proposed rate, charge, classification, rule, regulation, or practice. The Commission may suspend the operation of the proposed rate for up to five months. After the suspension period expires, the filed rate may go into effect, but only subject to refund if the rate is later determined to be unjust, unreasonable, unduly discriminatory, or preferential. Section 4(e) also expressly places the burden of proof on the natural gas company to show that the rate or change is just and reasonable.

The statutory distinction between an initial tariff filing and a subsequent rate change is important for Ridgeline. Ridgeline’s May 12, 2022 filing is not a change to an already approved tariff rate. Rather, Ridgeline filed its first FERC Gas Tariff, Original Volume No. 1, containing its initial recourse rate and initial open-access tariff terms. Because no prior Commission-approved Ridgeline recourse rate exists, Ridgeline must establish the justness and reasonableness of the initial tariff and rate on a full evidentiary basis.

B. Relationship to NGA §§ 5 and 7

Section 4 should be distinguished from Sections 5 and 7 of the NGA.

Section 5 authorizes the Commission, on its own motion or on complaint, to investigate existing rates, charges, classifications, rules, regulations, practices, or contracts and to determine whether they are unjust, unreasonable, unduly discriminatory, or preferential. In an NGA § 5 proceeding, the burden generally rests on the Commission or the complainant to demonstrate that the existing rate or practice is unlawful and to establish a just and reasonable replacement. That burden allocation differs materially from a Section 4 filing, where the filing pipeline bears the burden.

Section 7 governs certificates of public convenience and necessity for the construction and operation of new interstate natural gas pipeline facilities. In a traditional NGA § 7 certificate proceeding, FERC may approve initial rates as part of certificate authorization, often subject to further NGA § 4 filings or later rate review. The certificate inquiry focuses on whether the proposed facilities are required by the present or future public convenience and necessity, taking into account project need, environmental considerations, landowner impacts, rate impacts, and related public interest factors.

Ridgeline’s pipeline entered service on October 1, 2021 and is operational. The current filing is principally under Part 284, Subpart G, which governs open-access transportation by interstate pipelines operating under blanket certificate authority, and under Part 154, which governs tariff and rate filings. This is therefore not a traditional NGA § 7 certificate proceeding in which the Commission is deciding whether to authorize construction of a new pipeline facility. Rather, Ridgeline is filing initial rates and tariff terms for open-access interstate transportation service.

The interplay among these sections is significant. Initial rates for pipelines operating under blanket certificate authority are filed under NGA § 4 and 18 C.F.R. Part 154. The Commission’s review therefore focuses on whether the proposed initial rate and tariff terms are just and reasonable and compliant with open-access requirements, rather than whether the pipeline should be certificated for construction in the first instance.

C. FERC’s Jurisdictional Authority Over Ridgeline

Ridgeline operates a 187-mile, 24-inch-diameter, high-pressure natural gas pipeline used for interstate transportation from Wetzel County, West Virginia to Greene County, Pennsylvania. The pipeline receives and transports natural gas across state lines and provides transportation service in interstate commerce. It is therefore a jurisdictional interstate natural gas pipeline subject to the NGA and FERC’s implementing regulations.

FERC has assigned Ridgeline the pipeline code 960442. Ridgeline’s filing was made pursuant to NGA §§ 4 and 7 and 18 C.F.R. Parts 154, 157, and 284. Although the immediate rate filing issues arise principally under NGA § 4 and Part 154, the filing also implicates Part 157 blanket certificate rules and Part 284 open-access transportation requirements.

Ridgeline Midstream Services LLC is a Delaware limited liability company. Its sole member is Dunmore Energy Holdings Ltd., a Cayman Islands exempted limited company registered under company number CR-381204. Ridgeline’s principal office is located at 700 Kanawha Boulevard East, Suite 1400, Charleston, West Virginia 25301.

Given the interstate nature of Ridgeline’s facilities and service, and given that Ridgeline is offering jurisdictional transportation service under a FERC tariff, FERC has jurisdiction to review and approve, reject, suspend, condition, or set for hearing Ridgeline’s initial rates, rate schedules, General Terms and Conditions, Form of Service Agreement, and interconnection-related tariff provisions.

III. Burden of Proof in Initial Rate Filings

A. The Filing Pipeline Bears the Burden

Under NGA § 4(e), the burden of proof to show that a proposed rate, charge, classification, rule, regulation, practice, or contract is just and reasonable rests on the natural gas company making the filing. This burden applies not only to changes in existing rates but also to initial rates proposed for jurisdictional service.

The burden allocation is materially different from an NGA § 5 complaint or investigation. In a Section 5 case, the complainant or the Commission must first show that an existing rate is unjust and unreasonable and then establish a just and reasonable replacement. In a Section 4 case, by contrast, the pipeline proposing the rate must affirmatively support the rate from the outset.

For Ridgeline, this means that every material component of its proposed initial recourse rate must be supported by competent record evidence. The company must demonstrate the reasonableness of:

• rate base;

• return on rate base;

• return on equity;

• capital structure;

• cost of debt;

• depreciation and amortization;

• operating and maintenance expenses;

• administrative and general expenses;

• taxes other than income taxes;

• income tax allowance;

• revenue credits;

• billing determinants;

• load factor assumptions;

• rate design;

• tariff terms and conditions; and

• interconnection-related cost allocation and service terms.

The Commission and the courts have repeatedly recognized that a regulated utility’s rates must satisfy the constitutional and statutory standards articulated in cases such as Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591 (1944), and Bluefield Water Works & Improvement Co. v. Public Service Commission, 262 U.S. 679 (1923). Those cases establish that rates must allow the regulated enterprise an opportunity to recover prudently incurred costs and earn a return commensurate with risks, while protecting consumers from excessive charges. The Commission applies those principles through NGA § 4’s statutory just-and-reasonable standard.

The key point for present purposes is that Ridgeline cannot satisfy its burden through conclusory assertions or unsupported modeling. It must present evidence that is sufficiently detailed, internally consistent, and responsive to FERC’s Part 154 requirements and deficiency concerns.

B. Standard of Review — “Just and Reasonable”

FERC’s just-and-reasonable review is not a search for a single mathematically correct rate. Rather, Commission and judicial precedent recognize a “zone of reasonableness.” A rate need not be the lowest conceivable rate, nor must it be the only possible rate. It must, however, fall within a range bounded by two competing interests.

At the lower end, the rate must be sufficient to allow the pipeline to recover prudently incurred costs, maintain financial integrity, and attract capital on reasonable terms. This is the investor interest identified in Hope and Bluefield. At the upper end, the rate must not require customers to pay more than a just and reasonable amount for the jurisdictional service. This is the consumer interest that prevents monopoly pipelines from extracting excessive rates.

Ridgeline originally proposed a recourse rate of $0.2265 per Dth. In the contested proceeding, intervenor positions have developed around both the level of the rate and the design of the tariff. Mountain Gas Procurement Cooperative, through rate expert Dr. Eleanor Vasquez, has advocated a rate ceiling of approximately $0.2560 per Dth. Appalachian Trunk Pipeline Company, represented by Kellner, Royce & Dillard LLP, with lead partner William Pratt, has opposed both the rate level and Ridgeline’s proposed interconnection cost allocation.

Ridgeline’s redesigned tariff model proposes a higher recourse rate of $0.3140 per Dth, consisting of a reservation component of $0.3102 per Dth and a usage component of $0.0038 per Dth, based on revised cost-of-service inputs and revised billing determinants. The redesigned rate reduces the proposed return on equity from 14.00% to 12.50%, but the unit rate increases because the proposed load factor is reduced from 100% to 75% and the total cost of service increases from $97.36 million to $103.15 million.

If the case proceeds to hearing, FERC will evaluate the proposed rate within the zone of reasonableness. The Commission may accept Ridgeline’s proposal, reject it, require modifications, or determine a different rate based on the record. Because Ridgeline bears the NGA § 4 burden, it must be prepared to defend each input independently, not merely the final output.

C. Presumption of Reasonableness for Initial Rates

Initial rates filed by a new pipeline do not benefit from the same practical baseline as rate changes filed by an existing pipeline with a Commission-approved tariff history. In a rate-change proceeding, the existing filed rate may serve as a reference point, even though the filing pipeline still bears the burden under NGA § 4. By contrast, an initial tariff filing begins without a prior approved rate for the same pipeline service.

Accordingly, Ridgeline should not assume that its initial proposed rate will receive a strong presumption of reasonableness simply because it has been filed. The filed-rate doctrine preserves the legal effect of filed rates once effective, but it does not relieve a pipeline of the burden to justify an initial rate when the Commission suspends, investigates, or sets the filing for hearing.

That said, if a pipeline follows established FERC cost-of-service methodology, there is a practical methodological advantage. FERC is familiar with the traditional cost-of-service model, including original-cost rate base, depreciation, return on rate base, O&M and A&G expense, taxes, revenue credits, and billing determinants. A pipeline that presents its filing in a manner consistent with Commission precedent and Part 154 exhibits begins from a recognizable analytic framework. Individual inputs may still be contested, but the use of the accepted framework reduces the risk that the entire approach will be rejected as methodologically unsound.

For Ridgeline, the distinction is important. Ridgeline entered service on October 1, 2021 and is filing its first tariff. It has no prior Commission-approved recourse rate. It must therefore build its case entirely from cost-of-service evidence and tariff compliance evidence. The proposed Original Volume No. 1 tariff must stand on its own.

D. Evidentiary Standards and Hearing Procedures

FERC established a Track II procedural schedule by order dated September 22, 2022. Administrative Law Judge Clara Whitfield was appointed on November 14, 2022.

Ridgeline filed direct testimony on December 5, 2022. Seven witnesses supported the filing, including:

1. James K. Winfield, addressing corporate policy, project background, and service need;

2. Angela Moretti, addressing cost of service, rate base, and accounting support;

3. Thomas Greaves, addressing engineering, system design, capacity, and operational assumptions;

4. Dr. Natasha Orlov, addressing rate design and tariff provisions;

5. Dr. Raymond Braswell, addressing return on equity, capital structure, and financial methodology; and

6. two additional witnesses addressing operational implementation, scheduling, regulatory compliance, and open-access tariff administration.

Answering testimony was filed on January 9, 2023 by Appalachian Trunk Pipeline Company, Mountain Gas Procurement Cooperative, and the Central Municipal Gas Alliance. MGPC’s case included testimony by Dr. Eleanor Vasquez. CMGA appeared through Fordham Municipal Law Group PC, with Stephen Greer as lead counsel.

The proceeding was stayed as of February 6, 2023, following FERC’s January 19, 2023 deficiency letter, which identified fourteen items requiring correction or further support. The deficiency letter has materially shaped the procedural posture of the docket. Ridgeline filed a partial response on March 15, 2023 addressing eight of the fourteen items. The remaining six items are being addressed through the comprehensive tariff redesign led by Braswell Energy Consulting Group LLC.

IV. Regulatory Filing Requirements Under 18 C.F.R. Part 154

A. Content Requirements — 18 C.F.R. § 154.7

Part 154 sets forth the Commission’s tariff filing requirements for natural gas companies. Section 154.7 requires a filing to include, among other things, a clear statement of the nature of the filing, the tariff records submitted, the requested effective date, the basis for the filing, and supporting information sufficient to permit Commission review.

Ridgeline filed its Statement of Nature of Filing contemporaneously with the May 12, 2022 application. The statement described the proposed open-access transportation service, the proposed initial tariff, and the proposed initial recourse rate.

For an initial rate filing of this kind, the filing must include:

• a description of the proposed jurisdictional service;

• the proposed rate schedules;

• the proposed rates and rate components;

• the requested effective date;

• the basis for the proposed rates;

• the cost-of-service methodology employed;

• the test year used;

• the billing determinants used to derive the unit rate;

• an explanation of rate design choices; and

• the tariff provisions governing service, scheduling, credit, curtailment, penalties, capacity release, and related terms.

The sufficiency of the filing is not limited to whether each required document was submitted. FERC staff may require additional explanation where the filed materials do not adequately support the proposed rates or tariff terms. The January 19, 2023 deficiency letter reflects precisely that type of review.

B. Tariff Formatting and Structure Requirements

Sections 154.101 and following specify tariff format and submission requirements. FERC requires jurisdictional natural gas pipeline tariffs to be filed in a structured format, with tariff records organized by title, volume, rate schedule, and General Terms and Conditions. Tariff provisions must be clear, internally consistent, and capable of administration through the pipeline’s nomination, scheduling, billing, and compliance systems.

Ridgeline’s tariff is filed as FERC Gas Tariff, Original Volume No. 1. Because Ridgeline is operating under open-access transportation authority, the tariff must comply with Part 284, Subpart G. The tariff must contain the rate schedules, General Terms and Conditions, and service agreement forms necessary for nondiscriminatory transportation service.

Ridgeline’s tariff includes:

• Rate Schedule FT-1, governing firm transportation service;

• Rate Schedule IT-1, governing interruptible transportation service;

• General Terms and Conditions, governing scheduling, nominations, curtailment, imbalance management, operational flow orders, capacity release, creditworthiness, penalties, force majeure, and related service terms; and

• a Form of Service Agreement for transportation service.

FERC staff’s deficiency items indicate that several structural tariff provisions require refinement. In particular, staff requested additional support for the interruptible rate derivation, capacity release provisions, NAESB compliance, electronic bulletin board postings, shipper-must-have-title requirements, segmentation and flexible receipt/delivery point rights, and the filing of the interconnection agreement as a rate schedule.

C. Exhibits and Supporting Data — Exhibits A Through P

Part 154 requires substantial supporting data for a rate filing, commonly presented through Exhibits A through P. These exhibits provide the numerical and factual basis for the proposed cost of service and rate design.

Ridgeline filed Exhibits A through P as a consolidated workbook with its May 12, 2022 application. The principal exhibits include:

The consolidated workbook provides the foundation for Ridgeline’s $97.36 million filed cost of service and $612.40 million rate base. The redesigned tariff filing should update the same exhibits, not merely provide narrative responses. FERC staff and intervenors will expect reconciliations between the original filing, the March 15, 2023 partial response, and the redesigned cost-of-service model.

D. Verification Requirements

Section 154.7(a)(9) requires verification under oath by a responsible officer. The purpose is to ensure that the data submitted to the Commission are formally certified by an officer with authority and knowledge sufficient to attest to their accuracy.

James K. Winfield, Chief Executive Officer and President of Ridgeline, signed the Verification and Certificate of Accuracy accompanying the application. The verification attested to the accuracy of the data included in the application and supporting exhibits.

Any redesigned tariff filing and supplemental exhibit package should include an updated verification. If the redesigned filing materially changes the cost of service, rate design, ROE, billing determinants, tariff provisions, or interconnection rate schedule treatment, the verification should expressly cover the revised materials.

E. Deficiency Letter Standards

FERC’s Office of Energy Market Regulation may issue a deficiency letter identifying specific deficiencies in a tariff or rate filing. A deficiency letter is not a merits determination, but it signals that staff does not regard the filing as complete or sufficiently supported for purposes of Commission review. The filing pipeline must respond fully and accurately.

FERC issued a deficiency letter on January 19, 2023, identifying fourteen items. The items include both cost-of-service issues and tariff compliance issues:

1. inadequate support for the proposed 14.00% ROE;

2. insufficient support for the fuel, lost and unaccounted-for gas tracker;

3. missing interruptible transportation rate derivation;

4. insufficient support for the 100% load factor billing determinant assumption;

5. incomplete capacity release provisions;

6. insufficient NAESB standards compliance provisions;

7. incomplete electronic bulletin board posting provisions;

8. shipper-must-have-title language requiring clarification;

9. failure to file the interconnection agreement as a rate schedule;

10. inadequate penalty revenue crediting mechanism;

11. inadequate creditworthiness provisions;

12. insufficient segmentation and flexible receipt/delivery point provisions;

13. absence of greenhouse gas emission cost recovery provisions; and

14. failure to address FERC Order No. 2222 distributed energy resource aggregation implications.

Ridgeline filed a partial response on March 15, 2023, addressing eight of the fourteen items: Items 1 through 4 and Items 7 through 10. The remaining six items — Items 5, 6, 11, 12, 13, and 14 — are being addressed through the comprehensive tariff redesign led by Braswell Energy Consulting Group LLC, engagement number BEC-2023-0041, engaged on April 15, 2023.

The current deadline for the redesigned tariff filing is February 21, 2025, pursuant to ALJ Whitfield’s third extension order dated March 4, 2024.

V. Cost-of-Service Methodology for New Pipelines

A. Overview of Cost-of-Service Rate-Making

FERC’s traditional cost-of-service methodology determines a pipeline’s revenue requirement by adding return on rate base and operating expenses. In simplified form:

Revenue Requirement = Return on Rate Base + Operating Expenses + Depreciation + Taxes − Revenue Credits

The pipeline then proposes billing determinants, typically based on contract demand, design capacity, throughput assumptions, or load factor assumptions, to derive a unit rate. The rate must be designed to recover the revenue requirement from jurisdictional service without over-recovery or undue discrimination among customers.

Ridgeline’s test year ended March 31, 2022. Because the pipeline entered service on October 1, 2021, the test-year data include a partial initial period of operations. The partial operating history makes the evidentiary record particularly important. FERC and intervenors are likely to scrutinize whether test-year expenses, throughput, utilization, depreciation, working capital, and revenue credits are representative of going-forward operations.

B. Rate Base Determination

Rate base generally consists of net plant in service, plus working capital and other allowable rate base items, less accumulated deferred income taxes and other offsets. FERC generally uses original cost rate base for natural gas pipelines rather than reproduction cost or fair value. The original-cost principle reflects longstanding Commission ratemaking practice and provides an administrable basis for calculating the investment on which the pipeline may earn a return.

Ridgeline’s filed rate base components are as follows:

The original construction cost of $587.2 million is supported by a pipeline valuation performed by Ridgepoint Appraisal & Valuation Inc., based in Houston, Texas. The accumulated depreciation amount of $23.49 million reflects straight-line depreciation at 2.5% per annum for the period from the pipeline’s October 1, 2021 in-service date through the March 31, 2022 test-year end, together with prior period adjustments reflected in Ridgeline’s accounting records.

The working capital allowance of $18.64 million was calculated using the Commission’s conventional one-eighth formula applied to O&M and A&G expenses. The $12.45 million ADIT balance reduces rate base. Other rate base items of $42.50 million include gas stored, prepayments, materials and supplies, and related items.

The redesigned filing should confirm that the $612.40 million rate base remains appropriate and should reconcile the original construction cost, accumulated depreciation, working capital, ADIT, and other rate base items to FERC Form 2 data and supporting workpapers. If any revised amounts are introduced, Ridgeline should clearly distinguish accounting corrections from ratemaking adjustments.

C. Return on Equity

FERC traditionally evaluates natural gas pipeline return on equity using a discounted cash flow methodology, typically based on a proxy group of comparable publicly traded companies. The Commission has used variations of a two-step DCF model, incorporating dividend yields and growth projections, while also considering capital market conditions, pipeline risk, and comparability of proxy companies.

Ridgeline originally proposed a 14.00% ROE. That figure was based on a proxy group DCF analysis available at the time of filing. FERC Deficiency Letter Item 1 challenged the adequacy of that support, noting the absence of an updated post-2021 proxy group analysis.

Intervenors have proposed materially lower ROEs. ATPC proposes 10.75%. MGPC, through Dr. Eleanor Vasquez, proposes 11.25%. Ridgeline’s revised draft model proposes 12.50%, based on an updated DCF proxy group analysis as of the third quarter of 2024.

FERC precedent does not establish a single fixed ROE for new pipelines. The Commission has approved ROEs in the approximate range of 10% to 14% depending on risk profile, market conditions, capital structure, utilization, subscription levels, and the evidentiary record. New pipelines may present higher risk than established systems because of construction, start-up, throughput, and market risks. Conversely, if a new pipeline has stable contracts, strong creditworthy shippers, and predictable cash flows, a lower ROE may be found sufficient.

Ridgeline’s revised 12.50% ROE is likely more defensible than the original 14.00% proposal, but it remains above the intervenor proposals. The supplemental testimony should show why Ridgeline’s risk profile justifies an ROE above 10.75% or 11.25%, including evidence on utilization, market exposure, shipper concentration, financing costs, capital market conditions, and the absence of a mature rate history.

D. Capital Structure

FERC generally prefers to use a pipeline’s actual capital structure unless it is anomalous, unrepresentative, or unreasonable. The Commission may adjust a capital structure that is excessively leveraged, artificially equity-rich, or the result of affiliate arrangements that do not reflect market financing realities.

Ridgeline proposed a capital structure of 55% equity and 45% debt. That structure is within the range typically approved by FERC for natural gas pipeline ratemaking. It is not facially over-leveraged or artificially equity-heavy.

Ridgeline’s proposed cost of debt is 5.25%. The cost of debt reflects the weighted average of:

• a $400 million term loan at SOFR plus 325 basis points from a Pinnacle National Bank-led lending syndicate; and

• $150 million of 7.875% Second Lien Senior Secured Notes held by Harborview Capital Management LLC and Sentinel Ridge Fund LP.

Ridgeline’s original weighted average cost of capital was calculated as follows:

Original WACC = (0.55 × 14.00%) + (0.45 × 5.25%) = 10.0625%

Ridgeline’s revised weighted average cost of capital, using the revised 12.50% ROE, is:

Revised WACC = (0.55 × 12.50%) + (0.45 × 5.25%) = 9.2375%

The capital structure should be supported with debt agreements, capitalization schedules, audited or reviewed financial statements, and testimony explaining why the structure reflects actual financing and is reasonable for a new pipeline of Ridgeline’s scale and risk profile.

E. Depreciation. FERC generally allows depreciation based on the straight-line method, with useful life determined through engineering evidence, expected service life, retirement patterns, salvage assumptions, and system-specific conditions. For pipelines, depreciation rates commonly reflect expected operating lives of several decades.

Ridgeline proposes a depreciation rate of 2.5% per annum, implying a 40-year useful life. The resulting annual depreciation expense is $14.68 million. Accumulated depreciation at the test year is $23.49 million, reflecting the partial first year of service and accounting adjustments.

The redesigned filing should address negative salvage. Negative salvage can materially affect depreciation and future abandonment cost recovery. Because FERC has scrutinized negative salvage claims where pipelines do not present adequate retirement studies or system-specific evidence, Ridgeline should include supplemental testimony explaining whether negative salvage is included, deferred, or reserved for future rate proceedings.

F. Operating Expenses

Ridgeline’s filed operating expenses include:

The original O&M expense of $12.44 million is based on filed FERC Form 2 data. Administrative and General expense is $4.82 million. Taxes other than income, including property and franchise taxes, are $3.80 million.

The redesigned tariff model increases O&M to $13.92 million and A&G to $5.14 million. These increases should be explained with specificity. The record should distinguish between recurring operating costs, start-up costs, one-time transition costs, affiliate service charges, shared services allocations, and regulatory compliance costs.

Affiliate cost allocation is a likely area of scrutiny. Ridgeline is wholly owned by Dunmore Energy Holdings Ltd. Any costs charged by affiliates or shared services entities must be supported by transparent allocation methodologies and documentation showing that costs are reasonable, directly assignable or properly allocated, and not duplicative.

G. Income Tax Allowance

Ridgeline’s original income tax allowance is $16.10 million. The redesigned model includes an income tax allowance of $15.04 million.

The tax calculation uses a grossed-up income tax methodology. The assumed federal income tax rate is 21%. The West Virginia state rate is 6.5%. The effective combined rate is approximately 26.13%, after accounting for deductibility interactions.

Ridgeline’s organizational form requires careful treatment. Ridgeline is a limited liability company with a sole member, Dunmore Energy Holdings Ltd., a Cayman Islands exempted limited company. FERC precedent on income tax allowances for partnerships and pass-through entities requires a pipeline to show that the regulated entity or its owners bear an actual or imputed income tax obligation associated with the regulated income. The Commission has revised and refined its policy in response to court decisions and tax changes, and pipelines with non-corporate or foreign ownership structures may face heightened scrutiny.

Ridgeline should therefore include testimony and tax support demonstrating why an income tax allowance is appropriate. The filing should identify the relevant taxable owner or owners, the tax obligations borne directly or indirectly, and the basis for any gross-up. If Ridgeline cannot make that showing, the income tax allowance may be reduced or disallowed, which would affect the total cost of service and rate design.

H. Revenue Credits

Ridgeline’s original filing included revenue credits of ($16.10 million), offsetting cost of service. The redesigned model reduces revenue credits to ($6.00 million).

Revenue credits typically include revenues from interruptible transportation, penalties, imbalance charges, ancillary services, and other non-firm or non-recurring services that should reduce the amount recovered from firm recourse rates. The treatment of revenue credits can have a material impact on the resulting recourse rate.

Deficiency Item 10 specifically concerns the penalty revenue crediting mechanism. FERC generally requires penalty revenues to be credited to non-offending shippers or otherwise treated in a manner that prevents the pipeline from profiting from penalties. Ridgeline’s redesigned tariff should specify the crediting mechanism, the timing of credits, the eligible recipient class, and the accounting treatment.

The reduction in revenue credits from $16.10 million to $6.00 million is a significant driver of the increased redesigned cost of service. Ridgeline should provide a detailed explanation for the change and support it with actual revenue history, forecast assumptions, and consistency with tariff provisions.

I. Billing Determinants and Rate Design

Ridgeline’s original billing determinants assumed full utilization of design capacity:

1,200,000 Dth/d × 365 days × 100% load factor = 438,000,000 Dth/year

Using the original total cost of service of $97.36 million, Ridgeline calculated the original recourse rate as follows:

$97.36 million ÷ 438,000,000 Dth/year = $0.2265 per Dth

The original rate consisted of a $0.2223 per Dth reservation component and a $0.0042 per Dth usage component.

Deficiency Item 4 challenged the 100% load factor assumption. Actual throughput is approximately 680 MMcf/d, which equals approximately 56.67% utilization of the 1.2 Bcf/d design capacity. FERC has historically scrutinized 100% load factor assumptions for new pipelines that lack substantial contracted capacity or actual throughput history supporting that level of utilization.

Ridgeline’s redesigned tariff uses a 75% load factor:

1,200,000 Dth/d × 365 days × 75% load factor = 328,500,000 Dth/year

Using the revised cost of service of $103.15 million, the redesigned rate is:

$103.15 million ÷ 328,500,000 Dth/year = $0.3140 per Dth

The revised rate consists of a $0.3102 per Dth reservation component and a $0.0038 per Dth usage component.

The 75% load factor is likely more defensible than 100%, but it remains above actual utilization of approximately 56.67%. Ridgeline should support the 75% figure through evidence of contracted demand, shipper negotiations, production forecasts, interconnection capacity, market demand, seasonal utilization, and expected ramp-up. Intervenors may advocate an 85% or higher load factor to reduce the unit rate. Ridgeline must be prepared to explain why a higher load factor would understate the just and reasonable rate and impair cost recovery.

The redesigned tariff adopts a modified fixed-variable rate design methodology, replacing the original straight fixed-variable approach. The supplemental testimony should explain the allocation of fixed and variable costs, the rationale for the reservation and usage components, and why the modified design produces just and reasonable rates without undue discrimination.

VI. Open-Access Requirements — Part 284, Subpart G

A. Blanket Certificate Authority

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
TO: Patricia Dunmore, Billing Partner; George Trujillo, Responsible Partner
FROM: Brett Callahan, Lead Associate; David Stanton, Working Associate
DATE: May 2022
RE: Analysis of Natural Gas Act § 4 Filing Requirements Applicable to Ridgeline Midstream Services LLC Initial Tariff Rate Filing — FERC Docket Nos. RP22-847-000 and RP22-847-001
C&H MATTER NO.: 1016-00005
CLIENT: Dunmore Energy Holdings Ltd. / Ridgeline Midstream Services LLC
I. Executive Summary and Purpose
This memorandum analyzes the legal standards governing Ridgeline Midstream Services LLC’s initial tariff rate filing under Section 4 of the Natural Gas Act, 15 U.S.C. § 717c, and the Federal Energy Regulatory Commission’s implementing regulations at 18 C.F.R. Part 154. Ridgeline’s filing concerns its proposed open-access interstate natural gas transportation service on the Ridgeline Pipeline System and its proposed FERC Gas Tariff, Original Volume No. 1.
Ridgeline filed its application on May 12, 2022, seeking Commission approval of an initial recourse rate of $0.2265 per Dth, consisting of a reservation component of $0.2223 per Dth and a usage component of $0.0042 per Dth, for interstate transportation service on the Ridgeline Pipeline System. The filing was submitted in Docket No. RP22-847-000. Ridgeline also seeks authorization related to its interconnection with Appalachian Trunk Pipeline Company, LLC at the Wetzel County Interconnect, which has been docketed as RP22-847-001.
The proposed rate was supported by a filed total cost of service of $97.36 million and a rate base of $612.40 million. The filing was presented as an initial tariff and initial rate filing for service under Ridgeline’s FERC Gas Tariff, Original Volume No. 1, rather than as a rate change to an established Commission-approved tariff rate.
This memorandum addresses six principal issues:
1. the statutory framework under NGA § 4;
2. the burden of proof applicable to initial rate filings;
3. the presumption of reasonableness and its limits in the initial-rate context;
4. the applicable FERC regulatory requirements under 18 C.F.R. Parts 154, 157, and 284;
5. the cost-of-service methodology standards applicable to new pipelines; and
6. the implications of those standards for Ridgeline’s filing and litigation strategy.
Although the filing was made in May 2022, this memorandum also reflects subsequent procedural developments in the docket, including the September 22, 2022 Track II procedural schedule, the appointment of Administrative Law Judge Clara Whitfield, the January 19, 2023 FERC deficiency letter, the February 6, 2023 stay of the proceeding, Ridgeline’s March 15, 2023 partial response, and the current redesign process being led by Braswell Energy Consulting Group LLC.
The core conclusion is straightforward: because Ridgeline is making an initial NGA § 4 tariff rate filing, it bears the burden of demonstrating that its proposed rates, rate design, tariff terms, and interconnection-related provisions are just and reasonable and not unduly discriminatory or preferential. Ridgeline cannot rely on an existing Commission-approved rate as a baseline. The redesigned tariff and supplemental testimony therefore must build the record from the ground up, with particular emphasis on rate base support, return on equity, capital structure, load factor, billing determinants, tariff compliance, open-access provisions, and interconnection cost allocation.
II. Statutory Framework — Natural Gas Act § 4
A. Text and Scope of NGA § 4
Section 4 of the Natural Gas Act is the principal statutory provision governing rates, charges, classifications, and tariff terms filed by jurisdictional natural gas companies. It establishes the foundational “just and reasonable” standard and imposes a filing obligation on natural gas companies subject to FERC jurisdiction.
Section 4(a) provides, in substance, that all rates and charges made, demanded, or received by a natural gas company for or in connection with the transportation or sale of natural gas subject to the jurisdiction of the Commission, and all rules and regulations affecting or pertaining to such rates or charges, must be just and reasonable. Any rate or charge that is not just and reasonable is declared unlawful. Section 4(a) also prohibits rates, charges, rules, regulations, practices, and contracts that are unduly discriminatory or preferential.
Section 4(c) requires natural gas companies to file with the Commission schedules showing all rates and charges for jurisdictional transportation or sales, together with classifications, practices, contracts, and regulations affecting those rates and charges. These schedules must be kept open for public inspection, reflecting the NGA’s broader filed-rate regime. The purpose of the filing requirement is to ensure transparency and to prevent jurisdictional pipelines from imposing rates or terms not filed with and subject to review by the Commission.
Section 4(d) requires advance notice of rate or tariff changes. A natural gas company may not change a filed rate, charge, classification, or service term except after thirty days’ notice to the Commission and the public, unless the Commission permits the change to become effective on shorter notice for good cause shown.
Section 4(e) authorizes the Commission, upon the filing of a rate or tariff change, to enter upon a hearing concerning the lawfulness of the proposed rate, charge, classification, rule, regulation, or practice. The Commission may suspend the operation of the proposed rate for up to five months. After the suspension period expires, the filed rate may go into effect, but only subject to refund if the rate is later determined to be unjust, unreasonable, unduly discriminatory, or preferential. Section 4(e) also expressly places the burden of proof on the natural gas company to show that the rate or change is just and reasonable.
The statutory distinction between an initial tariff filing and a subsequent rate change is important for Ridgeline. Ridgeline’s May 12, 2022 filing is not a change to an already approved tariff rate. Rather, Ridgeline filed its first FERC Gas Tariff, Original Volume No. 1, containing its initial recourse rate and initial open-access tariff terms. Because no prior Commission-approved Ridgeline recourse rate exists, Ridgeline must establish the justness and reasonableness of the initial tariff and rate on a full evidentiary basis.
B. Relationship to NGA §§ 5 and 7
Section 4 should be distinguished from Sections 5 and 7 of the NGA.
Section 5 authorizes the Commission, on its own motion or on complaint, to investigate existing rates, charges, classifications, rules, regulations, practices, or contracts and to determine whether they are unjust, unreasonable, unduly discriminatory, or preferential. In an NGA § 5 proceeding, the burden generally rests on the Commission or the complainant to demonstrate that the existing rate or practice is unlawful and to establish a just and reasonable replacement. That burden allocation differs materially from a Section 4 filing, where the filing pipeline bears the burden.
Section 7 governs certificates of public convenience and necessity for the construction and operation of new interstate natural gas pipeline facilities. In a traditional NGA § 7 certificate proceeding, FERC may approve initial rates as part of certificate authorization, often subject to further NGA § 4 filings or later rate review. The certificate inquiry focuses on whether the proposed facilities are required by the present or future public convenience and necessity, taking into account project need, environmental considerations, landowner impacts, rate impacts, and related public interest factors.
Ridgeline’s pipeline entered service on October 1, 2021 and is operational. The current filing is principally under Part 284, Subpart G, which governs open-access transportation by interstate pipelines operating under blanket certificate authority, and under Part 154, which governs tariff and rate filings. This is therefore not a traditional NGA § 7 certificate proceeding in which the Commission is deciding whether to authorize construction of a new pipeline facility. Rather, Ridgeline is filing initial rates and tariff terms for open-access interstate transportation service.
The interplay among these sections is significant. Initial rates for pipelines operating under blanket certificate authority are filed under NGA § 4 and 18 C.F.R. Part 154. The Commission’s review therefore focuses on whether the proposed initial rate and tariff terms are just and reasonable and compliant with open-access requirements, rather than whether the pipeline should be certificated for construction in the first instance.
C. FERC’s Jurisdictional Authority Over Ridgeline
Ridgeline operates a 187-mile, 24-inch-diameter, high-pressure natural gas pipeline used for interstate transportation from Wetzel County, West Virginia to Greene County, Pennsylvania. The pipeline receives and transports natural gas across state lines and provides transportation service in interstate commerce. It is therefore a jurisdictional interstate natural gas pipeline subject to the NGA and FERC’s implementing regulations.
FERC has assigned Ridgeline the pipeline code 960442. Ridgeline’s filing was made pursuant to NGA §§ 4 and 7 and 18 C.F.R. Parts 154, 157, and 284. Although the immediate rate filing issues arise principally under NGA § 4 and Part 154, the filing also implicates Part 157 blanket certificate rules and Part 284 open-access transportation requirements.
Ridgeline Midstream Services LLC is a Delaware limited liability company. Its sole member is Dunmore Energy Holdings Ltd., a Cayman Islands exempted limited company registered under company number CR-381204. Ridgeline’s principal office is located at 700 Kanawha Boulevard East, Suite 1400, Charleston, West Virginia 25301.
Given the interstate nature of Ridgeline’s facilities and service, and given that Ridgeline is offering jurisdictional transportation service under a FERC tariff, FERC has jurisdiction to review and approve, reject, suspend, condition, or set for hearing Ridgeline’s initial rates, rate schedules, General Terms and Conditions, Form of Service Agreement, and interconnection-related tariff provisions.
III. Burden of Proof in Initial Rate Filings
A. The Filing Pipeline Bears the Burden
Under NGA § 4(e), the burden of proof to show that a proposed rate, charge, classification, rule, regulation, practice, or contract is just and reasonable rests on the natural gas company making the filing. This burden applies not only to changes in existing rates but also to initial rates proposed for jurisdictional service.
The burden allocation is materially different from an NGA § 5 complaint or investigation. In a Section 5 case, the complainant or the Commission must first show that an existing rate is unjust and unreasonable and then establish a just and reasonable replacement. In a Section 4 case, by contrast, the pipeline proposing the rate must affirmatively support the rate from the outset.
For Ridgeline, this means that every material component of its proposed initial recourse rate must be supported by competent record evidence. The company must demonstrate the reasonableness of:
• rate base;
• return on rate base;
• return on equity;
• capital structure;
• cost of debt;
• depreciation and amortization;
• operating and maintenance expenses;
• administrative and general expenses;
• taxes other than income taxes;
• income tax allowance;
• revenue credits;
• billing determinants;
• load factor assumptions;
• rate design;
• tariff terms and conditions; and
• interconnection-related cost allocation and service terms.
The Commission and the courts have repeatedly recognized that a regulated utility’s rates must satisfy the constitutional and statutory standards articulated in cases such as Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591 (1944), and Bluefield Water Works & Improvement Co. v. Public Service Commission, 262 U.S. 679 (1923). Those cases establish that rates must allow the regulated enterprise an opportunity to recover prudently incurred costs and earn a return commensurate with risks, while protecting consumers from excessive charges. The Commission applies those principles through NGA § 4’s statutory just-and-reasonable standard.
The key point for present purposes is that Ridgeline cannot satisfy its burden through conclusory assertions or unsupported modeling. It must present evidence that is sufficiently detailed, internally consistent, and responsive to FERC’s Part 154 requirements and deficiency concerns.
B. Standard of Review — “Just and Reasonable”
FERC’s just-and-reasonable review is not a search for a single mathematically correct rate. Rather, Commission and judicial precedent recognize a “zone of reasonableness.” A rate need not be the lowest conceivable rate, nor must it be the only possible rate. It must, however, fall within a range bounded by two competing interests.
At the lower end, the rate must be sufficient to allow the pipeline to recover prudently incurred costs, maintain financial integrity, and attract capital on reasonable terms. This is the investor interest identified in Hope and Bluefield. At the upper end, the rate must not require customers to pay more than a just and reasonable amount for the jurisdictional service. This is the consumer interest that prevents monopoly pipelines from extracting excessive rates.
Ridgeline originally proposed a recourse rate of $0.2265 per Dth. In the contested proceeding, intervenor positions have developed around both the level of the rate and the design of the tariff. Mountain Gas Procurement Cooperative, through rate expert Dr. Eleanor Vasquez, has advocated a rate ceiling of approximately $0.2560 per Dth. Appalachian Trunk Pipeline Company, represented by Kellner, Royce & Dillard LLP, with lead partner William Pratt, has opposed both the rate level and Ridgeline’s proposed interconnection cost allocation.
Ridgeline’s redesigned tariff model proposes a higher recourse rate of $0.3140 per Dth, consisting of a reservation component of $0.3102 per Dth and a usage component of $0.0038 per Dth, based on revised cost-of-service inputs and revised billing determinants. The redesigned rate reduces the proposed return on equity from 14.00% to 12.50%, but the unit rate increases because the proposed load factor is reduced from 100% to 75% and the total cost of service increases from $97.36 million to $103.15 million.
If the case proceeds to hearing, FERC will evaluate the proposed rate within the zone of reasonableness. The Commission may accept Ridgeline’s proposal, reject it, require modifications, or determine a different rate based on the record. Because Ridgeline bears the NGA § 4 burden, it must be prepared to defend each input independently, not merely the final output.
C. Presumption of Reasonableness for Initial Rates
Initial rates filed by a new pipeline do not benefit from the same practical baseline as rate changes filed by an existing pipeline with a Commission-approved tariff history. In a rate-change proceeding, the existing filed rate may serve as a reference point, even though the filing pipeline still bears the burden under NGA § 4. By contrast, an initial tariff filing begins without a prior approved rate for the same pipeline service.
Accordingly, Ridgeline should not assume that its initial proposed rate will receive a strong presumption of reasonableness simply because it has been filed. The filed-rate doctrine preserves the legal effect of filed rates once effective, but it does not relieve a pipeline of the burden to justify an initial rate when the Commission suspends, investigates, or sets the filing for hearing.
That said, if a pipeline follows established FERC cost-of-service methodology, there is a practical methodological advantage. FERC is familiar with the traditional cost-of-service model, including original-cost rate base, depreciation, return on rate base, O&M and A&G expense, taxes, revenue credits, and billing determinants. A pipeline that presents its filing in a manner consistent with Commission precedent and Part 154 exhibits begins from a recognizable analytic framework. Individual inputs may still be contested, but the use of the accepted framework reduces the risk that the entire approach will be rejected as methodologically unsound.
For Ridgeline, the distinction is important. Ridgeline entered service on October 1, 2021 and is filing its first tariff. It has no prior Commission-approved recourse rate. It must therefore build its case entirely from cost-of-service evidence and tariff compliance evidence. The proposed Original Volume No. 1 tariff must stand on its own.
D. Evidentiary Standards and Hearing Procedures
FERC established a Track II procedural schedule by order dated September 22, 2022. Administrative Law Judge Clara Whitfield was appointed on November 14, 2022.
Ridgeline filed direct testimony on December 5, 2022. Seven witnesses supported the filing, including:
1. James K. Winfield, addressing corporate policy, project background, and service need;
2. Angela Moretti, addressing cost of service, rate base, and accounting support;
3. Thomas Greaves, addressing engineering, system design, capacity, and operational assumptions;
4. Dr. Natasha Orlov, addressing rate design and tariff provisions;
5. Dr. Raymond Braswell, addressing return on equity, capital structure, and financial methodology; and
6. two additional witnesses addressing operational implementation, scheduling, regulatory compliance, and open-access tariff administration.
Answering testimony was filed on January 9, 2023 by Appalachian Trunk Pipeline Company, Mountain Gas Procurement Cooperative, and the Central Municipal Gas Alliance. MGPC’s case included testimony by Dr. Eleanor Vasquez. CMGA appeared through Fordham Municipal Law Group PC, with Stephen Greer as lead counsel.
The proceeding was stayed as of February 6, 2023, following FERC’s January 19, 2023 deficiency letter, which identified fourteen items requiring correction or further support. The deficiency letter has materially shaped the procedural posture of the docket. Ridgeline filed a partial response on March 15, 2023 addressing eight of the fourteen items. The remaining six items are being addressed through the comprehensive tariff redesign led by Braswell Energy Consulting Group LLC.
IV. Regulatory Filing Requirements Under 18 C.F.R. Part 154
A. Content Requirements — 18 C.F.R. § 154.7
Part 154 sets forth the Commission’s tariff filing requirements for natural gas companies. Section 154.7 requires a filing to include, among other things, a clear statement of the nature of the filing, the tariff records submitted, the requested effective date, the basis for the filing, and supporting information sufficient to permit Commission review.
Ridgeline filed its Statement of Nature of Filing contemporaneously with the May 12, 2022 application. The statement described the proposed open-access transportation service, the proposed initial tariff, and the proposed initial recourse rate.
For an initial rate filing of this kind, the filing must include:
• a description of the proposed jurisdictional service;
• the proposed rate schedules;
• the proposed rates and rate components;
• the requested effective date;
• the basis for the proposed rates;
• the cost-of-service methodology employed;
• the test year used;
• the billing determinants used to derive the unit rate;
• an explanation of rate design choices; and
• the tariff provisions governing service, scheduling, credit, curtailment, penalties, capacity release, and related terms.
The sufficiency of the filing is not limited to whether each required document was submitted. FERC staff may require additional explanation where the filed materials do not adequately support the proposed rates or tariff terms. The January 19, 2023 deficiency letter reflects precisely that type of review.
B. Tariff Formatting and Structure Requirements
Sections 154.101 and following specify tariff format and submission requirements. FERC requires jurisdictional natural gas pipeline tariffs to be filed in a structured format, with tariff records organized by title, volume, rate schedule, and General Terms and Conditions. Tariff provisions must be clear, internally consistent, and capable of administration through the pipeline’s nomination, scheduling, billing, and compliance systems.
Ridgeline’s tariff is filed as FERC Gas Tariff, Original Volume No. 1. Because Ridgeline is operating under open-access transportation authority, the tariff must comply with Part 284, Subpart G. The tariff must contain the rate schedules, General Terms and Conditions, and service agreement forms necessary for nondiscriminatory transportation service.
Ridgeline’s tariff includes:
• Rate Schedule FT-1, governing firm transportation service;
• Rate Schedule IT-1, governing interruptible transportation service;
• General Terms and Conditions, governing scheduling, nominations, curtailment, imbalance management, operational flow orders, capacity release, creditworthiness, penalties, force majeure, and related service terms; and
• a Form of Service Agreement for transportation service.
FERC staff’s deficiency items indicate that several structural tariff provisions require refinement. In particular, staff requested additional support for the interruptible rate derivation, capacity release provisions, NAESB compliance, electronic bulletin board postings, shipper-must-have-title requirements, segmentation and flexible receipt/delivery point rights, and the filing of the interconnection agreement as a rate schedule.
C. Exhibits and Supporting Data — Exhibits A Through P
Part 154 requires substantial supporting data for a rate filing, commonly presented through Exhibits A through P. These exhibits provide the numerical and factual basis for the proposed cost of service and rate design.
Ridgeline filed Exhibits A through P as a consolidated workbook with its May 12, 2022 application. The principal exhibits include:
The consolidated workbook provides the foundation for Ridgeline’s $97.36 million filed cost of service and $612.40 million rate base. The redesigned tariff filing should update the same exhibits, not merely provide narrative responses. FERC staff and intervenors will expect reconciliations between the original filing, the March 15, 2023 partial response, and the redesigned cost-of-service model.
D. Verification Requirements
Section 154.7(a)(9) requires verification under oath by a responsible officer. The purpose is to ensure that the data submitted to the Commission are formally certified by an officer with authority and knowledge sufficient to attest to their accuracy.
James K. Winfield, Chief Executive Officer and President of Ridgeline, signed the Verification and Certificate of Accuracy accompanying the application. The verification attested to the accuracy of the data included in the application and supporting exhibits.
Any redesigned tariff filing and supplemental exhibit package should include an updated verification. If the redesigned filing materially changes the cost of service, rate design, ROE, billing determinants, tariff provisions, or interconnection rate schedule treatment, the verification should expressly cover the revised materials.
E. Deficiency Letter Standards
FERC’s Office of Energy Market Regulation may issue a deficiency letter identifying specific deficiencies in a tariff or rate filing. A deficiency letter is not a merits determination, but it signals that staff does not regard the filing as complete or sufficiently supported for purposes of Commission review. The filing pipeline must respond fully and accurately.
FERC issued a deficiency letter on January 19, 2023, identifying fourteen items. The items include both cost-of-service issues and tariff compliance issues:
1. inadequate support for the proposed 14.00% ROE;
2. insufficient support for the fuel, lost and unaccounted-for gas tracker;
3. missing interruptible transportation rate derivation;
4. insufficient support for the 100% load factor billing determinant assumption;
5. incomplete capacity release provisions;
6. insufficient NAESB standards compliance provisions;
7. incomplete electronic bulletin board posting provisions;
8. shipper-must-have-title language requiring clarification;
9. failure to file the interconnection agreement as a rate schedule;
10. inadequate penalty revenue crediting mechanism;
11. inadequate creditworthiness provisions;
12. insufficient segmentation and flexible receipt/delivery point provisions;
13. absence of greenhouse gas emission cost recovery provisions; and
14. failure to address FERC Order No. 2222 distributed energy resource aggregation implications.
Ridgeline filed a partial response on March 15, 2023, addressing eight of the fourteen items: Items 1 through 4 and Items 7 through 10. The remaining six items — Items 5, 6, 11, 12, 13, and 14 — are being addressed through the comprehensive tariff redesign led by Braswell Energy Consulting Group LLC, engagement number BEC-2023-0041, engaged on April 15, 2023.
The current deadline for the redesigned tariff filing is February 21, 2025, pursuant to ALJ Whitfield’s third extension order dated March 4, 2024.
V. Cost-of-Service Methodology for New Pipelines
A. Overview of Cost-of-Service Rate-Making
FERC’s traditional cost-of-service methodology determines a pipeline’s revenue requirement by adding return on rate base and operating expenses. In simplified form:
Revenue Requirement = Return on Rate Base + Operating Expenses + Depreciation + Taxes − Revenue Credits
The pipeline then proposes billing determinants, typically based on contract demand, design capacity, throughput assumptions, or load factor assumptions, to derive a unit rate. The rate must be designed to recover the revenue requirement from jurisdictional service without over-recovery or undue discrimination among customers.
Ridgeline’s test year ended March 31, 2022. Because the pipeline entered service on October 1, 2021, the test-year data include a partial initial period of operations. The partial operating history makes the evidentiary record particularly important. FERC and intervenors are likely to scrutinize whether test-year expenses, throughput, utilization, depreciation, working capital, and revenue credits are representative of going-forward operations.
B. Rate Base Determination
Rate base generally consists of net plant in service, plus working capital and other allowable rate base items, less accumulated deferred income taxes and other offsets. FERC generally uses original cost rate base for natural gas pipelines rather than reproduction cost or fair value. The original-cost principle reflects longstanding Commission ratemaking practice and provides an administrable basis for calculating the investment on which the pipeline may earn a return.
Ridgeline’s filed rate base components are as follows:
The original construction cost of $587.2 million is supported by a pipeline valuation performed by Ridgepoint Appraisal & Valuation Inc., based in Houston, Texas. The accumulated depreciation amount of $23.49 million reflects straight-line depreciation at 2.5% per annum for the period from the pipeline’s October 1, 2021 in-service date through the March 31, 2022 test-year end, together with prior period adjustments reflected in Ridgeline’s accounting records.
The working capital allowance of $18.64 million was calculated using the Commission’s conventional one-eighth formula applied to O&M and A&G expenses. The $12.45 million ADIT balance reduces rate base. Other rate base items of $42.50 million include gas stored, prepayments, materials and supplies, and related items.
The redesigned filing should confirm that the $612.40 million rate base remains appropriate and should reconcile the original construction cost, accumulated depreciation, working capital, ADIT, and other rate base items to FERC Form 2 data and supporting workpapers. If any revised amounts are introduced, Ridgeline should clearly distinguish accounting corrections from ratemaking adjustments.
C. Return on Equity
FERC traditionally evaluates natural gas pipeline return on equity using a discounted cash flow methodology, typically based on a proxy group of comparable publicly traded companies. The Commission has used variations of a two-step DCF model, incorporating dividend yields and growth projections, while also considering capital market conditions, pipeline risk, and comparability of proxy companies.
Ridgeline originally proposed a 14.00% ROE. That figure was based on a proxy group DCF analysis available at the time of filing. FERC Deficiency Letter Item 1 challenged the adequacy of that support, noting the absence of an updated post-2021 proxy group analysis.
Intervenors have proposed materially lower ROEs. ATPC proposes 10.75%. MGPC, through Dr. Eleanor Vasquez, proposes 11.25%. Ridgeline’s revised draft model proposes 12.50%, based on an updated DCF proxy group analysis as of the third quarter of 2024.
FERC precedent does not establish a single fixed ROE for new pipelines. The Commission has approved ROEs in the approximate range of 10% to 14% depending on risk profile, market conditions, capital structure, utilization, subscription levels, and the evidentiary record. New pipelines may present higher risk than established systems because of construction, start-up, throughput, and market risks. Conversely, if a new pipeline has stable contracts, strong creditworthy shippers, and predictable cash flows, a lower ROE may be found sufficient.
Ridgeline’s revised 12.50% ROE is likely more defensible than the original 14.00% proposal, but it remains above the intervenor proposals. The supplemental testimony should show why Ridgeline’s risk profile justifies an ROE above 10.75% or 11.25%, including evidence on utilization, market exposure, shipper concentration, financing costs, capital market conditions, and the absence of a mature rate history.
D. Capital Structure
FERC generally prefers to use a pipeline’s actual capital structure unless it is anomalous, unrepresentative, or unreasonable. The Commission may adjust a capital structure that is excessively leveraged, artificially equity-rich, or the result of affiliate arrangements that do not reflect market financing realities.
Ridgeline proposed a capital structure of 55% equity and 45% debt. That structure is within the range typically approved by FERC for natural gas pipeline ratemaking. It is not facially over-leveraged or artificially equity-heavy.
Ridgeline’s proposed cost of debt is 5.25%. The cost of debt reflects the weighted average of:
• a $400 million term loan at SOFR plus 325 basis points from a Pinnacle National Bank-led lending syndicate; and
• $150 million of 7.875% Second Lien Senior Secured Notes held by Harborview Capital Management LLC and Sentinel Ridge Fund LP.
Ridgeline’s original weighted average cost of capital was calculated as follows:
Original WACC = (0.55 × 14.00%) + (0.45 × 5.25%) = 10.0625%
Ridgeline’s revised weighted average cost of capital, using the revised 12.50% ROE, is:
Revised WACC = (0.55 × 12.50%) + (0.45 × 5.25%) = 9.2375%
The capital structure should be supported with debt agreements, capitalization schedules, audited or reviewed financial statements, and testimony explaining why the structure reflects actual financing and is reasonable for a new pipeline of Ridgeline’s scale and risk profile.
E. Depreciation. FERC generally allows depreciation based on the straight-line method, with useful life determined through engineering evidence, expected service life, retirement patterns, salvage assumptions, and system-specific conditions. For pipelines, depreciation rates commonly reflect expected operating lives of several decades.
Ridgeline proposes a depreciation rate of 2.5% per annum, implying a 40-year useful life. The resulting annual depreciation expense is $14.68 million. Accumulated depreciation at the test year is $23.49 million, reflecting the partial first year of service and accounting adjustments.
The redesigned filing should address negative salvage. Negative salvage can materially affect depreciation and future abandonment cost recovery. Because FERC has scrutinized negative salvage claims where pipelines do not present adequate retirement studies or system-specific evidence, Ridgeline should include supplemental testimony explaining whether negative salvage is included, deferred, or reserved for future rate proceedings.
F. Operating Expenses
Ridgeline’s filed operating expenses include:
The original O&M expense of $12.44 million is based on filed FERC Form 2 data. Administrative and General expense is $4.82 million. Taxes other than income, including property and franchise taxes, are $3.80 million.
The redesigned tariff model increases O&M to $13.92 million and A&G to $5.14 million. These increases should be explained with specificity. The record should distinguish between recurring operating costs, start-up costs, one-time transition costs, affiliate service charges, shared services allocations, and regulatory compliance costs.
Affiliate cost allocation is a likely area of scrutiny. Ridgeline is wholly owned by Dunmore Energy Holdings Ltd. Any costs charged by affiliates or shared services entities must be supported by transparent allocation methodologies and documentation showing that costs are reasonable, directly assignable or properly allocated, and not duplicative.
G. Income Tax Allowance
Ridgeline’s original income tax allowance is $16.10 million. The redesigned model includes an income tax allowance of $15.04 million.
The tax calculation uses a grossed-up income tax methodology. The assumed federal income tax rate is 21%. The West Virginia state rate is 6.5%. The effective combined rate is approximately 26.13%, after accounting for deductibility interactions.
Ridgeline’s organizational form requires careful treatment. Ridgeline is a limited liability company with a sole member, Dunmore Energy Holdings Ltd., a Cayman Islands exempted limited company. FERC precedent on income tax allowances for partnerships and pass-through entities requires a pipeline to show that the regulated entity or its owners bear an actual or imputed income tax obligation associated with the regulated income. The Commission has revised and refined its policy in response to court decisions and tax changes, and pipelines with non-corporate or foreign ownership structures may face heightened scrutiny.
Ridgeline should therefore include testimony and tax support demonstrating why an income tax allowance is appropriate. The filing should identify the relevant taxable owner or owners, the tax obligations borne directly or indirectly, and the basis for any gross-up. If Ridgeline cannot make that showing, the income tax allowance may be reduced or disallowed, which would affect the total cost of service and rate design.
H. Revenue Credits
Ridgeline’s original filing included revenue credits of ($16.10 million), offsetting cost of service. The redesigned model reduces revenue credits to ($6.00 million).
Revenue credits typically include revenues from interruptible transportation, penalties, imbalance charges, ancillary services, and other non-firm or non-recurring services that should reduce the amount recovered from firm recourse rates. The treatment of revenue credits can have a material impact on the resulting recourse rate.
Deficiency Item 10 specifically concerns the penalty revenue crediting mechanism. FERC generally requires penalty revenues to be credited to non-offending shippers or otherwise treated in a manner that prevents the pipeline from profiting from penalties. Ridgeline’s redesigned tariff should specify the crediting mechanism, the timing of credits, the eligible recipient class, and the accounting treatment.
The reduction in revenue credits from $16.10 million to $6.00 million is a significant driver of the increased redesigned cost of service. Ridgeline should provide a detailed explanation for the change and support it with actual revenue history, forecast assumptions, and consistency with tariff provisions.
I. Billing Determinants and Rate Design
Ridgeline’s original billing determinants assumed full utilization of design capacity:
1,200,000 Dth/d × 365 days × 100% load factor = 438,000,000 Dth/year
Using the original total cost of service of $97.36 million, Ridgeline calculated the original recourse rate as follows:
$97.36 million ÷ 438,000,000 Dth/year = $0.2265 per Dth
The original rate consisted of a $0.2223 per Dth reservation component and a $0.0042 per Dth usage component.
Deficiency Item 4 challenged the 100% load factor assumption. Actual throughput is approximately 680 MMcf/d, which equals approximately 56.67% utilization of the 1.2 Bcf/d design capacity. FERC has historically scrutinized 100% load factor assumptions for new pipelines that lack substantial contracted capacity or actual throughput history supporting that level of utilization.
Ridgeline’s redesigned tariff uses a 75% load factor:
1,200,000 Dth/d × 365 days × 75% load factor = 328,500,000 Dth/year
Using the revised cost of service of $103.15 million, the redesigned rate is:
$103.15 million ÷ 328,500,000 Dth/year = $0.3140 per Dth
The revised rate consists of a $0.3102 per Dth reservation component and a $0.0038 per Dth usage component.
The 75% load factor is likely more defensible than 100%, but it remains above actual utilization of approximately 56.67%. Ridgeline should support the 75% figure through evidence of contracted demand, shipper negotiations, production forecasts, interconnection capacity, market demand, seasonal utilization, and expected ramp-up. Intervenors may advocate an 85% or higher load factor to reduce the unit rate. Ridgeline must be prepared to explain why a higher load factor would understate the just and reasonable rate and impair cost recovery.
The redesigned tariff adopts a modified fixed-variable rate design methodology, replacing the original straight fixed-variable approach. The supplemental testimony should explain the allocation of fixed and variable costs, the rationale for the reservation and usage components, and why the modified design produces just and reasonable rates without undue discrimination.
VI. Open-Access Requirements — Part 284, Subpart G
A. Blanket Certificate Authority
Ridgeline operates under Part 284, Subpart G open-access transportation blanket certificate authority. That authority permits interstate pipelines to provide certain transportation services without obtaining a separate case-specific certificate for each transaction, provided the pipeline complies with FERC’s open-access requirements.
Those requirements include:
• nondiscriminatory access to transportation service;
• capacity release rights;
• transparent scheduling and nomination procedures;
• electronic bulletin board posting;
• NAESB standards compliance;
• standardized service agreements;
• shipper-must-have-title provisions;
• segmentation and flexible receipt and delivery point rights where required; and
• tariff provisions preventing preferential treatment.
Several deficiency items relate directly to these requirements:
• Item 5: capacity release;
• Item 6: NAESB compliance;
• Item 7: electronic bulletin board posting;
• Item 8: shipper-must-have-title;
• Item 12: segmentation and flexible receipt/delivery points.
These are not merely technical drafting issues. Noncompliance with open-access requirements can result in rejection of tariff provisions, required modifications, or adverse findings in the rate proceeding. The redesigned tariff should align with FERC’s pro forma expectations for interstate pipeline open-access service.
B. Tariff Structure Mandates
Ridgeline’s tariff must include both firm and interruptible transportation service. Rate Schedule FT-1 governs firm service, while Rate Schedule IT-1 governs interruptible service.
Deficiency Item 3 concerns the missing interruptible transportation rate derivation. The IT rate cannot simply be listed without support. Ridgeline must show how the IT rate relates to the firm recourse rate, whether it is designed as a maximum volumetric rate, whether it includes comparable fixed-cost recovery, and how interruptible revenues are credited in the cost-of-service model.
The General Terms and Conditions must include clear provisions covering:
• nominations and scheduling;
• priorities and curtailment;
• operational flow orders;
• force majeure;
• creditworthiness;
• capacity release;
• electronic bulletin board postings;
• shipper-must-have-title;
• penalties and penalty revenue crediting;
• imbalances;
• segmentation;
• flexible receipt and delivery point rights; and
• billing and payment procedures.
The tariff must also include a Form of Service Agreement. The form should be consistent with the rate schedules and GT&C provisions and should not include unfiled terms that affect jurisdictional service.
C. Interconnection Agreement as a Rate Schedule
Deficiency Item 9 states that the interconnection agreement was not filed as a rate schedule. Under 18 C.F.R. § 154.1(d), agreements that affect rates, terms, or conditions of service must be filed with the Commission as rate schedules. An interconnection agreement that governs physical interconnection, measurement, pressure, operating conditions, cost responsibility, and capacity rights can affect jurisdictional service and therefore must be filed if it materially affects rates or service terms.
The relevant agreement is the Interconnection Agreement between Ridgeline and Appalachian Trunk Pipeline Company at the Wetzel County Interconnect, located at ATPC Milepost 412.6. The interconnection design capacity is 800 MMcf/d bidirectional, expandable to 1.2 Bcf/d.
The total interconnection facilities cost is $22.3 million. Ridgeline proposes a cost allocation of 34.1% to Ridgeline, equal to $7.6 million, and 65.9% to ATPC, equal to $14.7 million. ATPC advocates a 50/50 split, or $11.15 million to each party.
Three draft versions of the Interconnection Agreement have been prepared:
The redesigned filing should include the interconnection agreement as a rate schedule or explain in detail why any provisions do not affect jurisdictional rates, terms, or conditions. Given FERC’s deficiency item, filing the agreement as a rate schedule is the more prudent course.
VII. Emerging Regulatory Issues Relevant to Ridgeline’s Filing
A. Greenhouse Gas Emission Cost Recovery
Deficiency Item 13 states that the tariff does not include provisions addressing greenhouse gas emission cost recovery. The regulatory landscape for greenhouse gas costs affecting midstream infrastructure is evolving at both the federal and state levels. Potential future costs could arise from carbon pricing regimes, emissions fees, state compliance obligations, methane monitoring requirements, or other environmental regulatory programs.
Ridgeline should consider tariff language providing a tracker or passthrough mechanism for future carbon-related costs. Such a mechanism would need to be clear, objective, limited to identifiable compliance costs, and subject to appropriate notice and review. FERC typically scrutinizes trackers to ensure they do not permit open-ended or unsupported cost recovery.
A separate detailed memorandum addressing greenhouse gas emission cost recovery was prepared in March 2024. The redesigned tariff should incorporate the conclusions of that memorandum to the extent consistent with current Commission policy and settlement strategy.
B. FERC Order No. 2222 — Distributed Energy Resource Aggregation
Deficiency Item 14 concerns Ridgeline’s failure to address implications of FERC Order No. 2222 regarding distributed energy resource aggregation. Order No. 2222 primarily addresses participation by distributed energy resource aggregations in organized wholesale electric markets. Its direct application to an interstate natural gas pipeline tariff is not obvious. However, FERC staff has asked Ridgeline to address the implications in light of Dunmore Energy Holdings’ broader portfolio.
DEH’s portfolio includes a 250 MW wind portfolio under development. Ridgeline’s tariff should therefore consider whether renewable energy interconnection, power supply arrangements for compressor stations, electric reliability coordination, or related operational issues could affect transportation service terms. The objective is not to convert a gas tariff into an electric market tariff, but to demonstrate that Ridgeline has considered the potential operational and tariff implications.
A separate detailed memorandum addressing Order No. 2222 issues was prepared in May 2024. The redesigned filing should include a concise explanation responsive to the deficiency item and should avoid overcommitting Ridgeline to tariff obligations not required by FERC.
C. Creditworthiness Provisions
Deficiency Item 11 identifies inadequate creditworthiness provisions. FERC policy requires tariff provisions to provide clear, objective criteria for evaluating shipper creditworthiness. Pipelines may protect themselves against default risk, but credit requirements must not be vague, arbitrary, or unduly discriminatory.
Ridgeline’s revised creditworthiness provisions should include:
• objective credit rating thresholds;
• financial metrics or alternative credit criteria;
• collateral requirements;
• acceptable forms of collateral, including letters of credit and parental guaranties;
• notice and cure periods;
• procedures for credit reevaluation;
• default and suspension rights; and
• nondiscriminatory application to similarly situated shippers.
A separate detailed memorandum has been prepared addressing this issue. The redesigned tariff should incorporate its recommendations and should ensure consistency between GT&C credit provisions and the Form of Service Agreement.
VIII. Implications for Ridgeline’s Filing Strategy
A. Building the Evidentiary Record
Because Ridgeline bears the NGA § 4 burden of proof, the redesigned filing must present a comprehensive evidentiary record. FERC staff, led by Dr. Miriam Okafor, Lead Economic Analyst, and Jonathan Briggs, Lead Trial Attorney, have signaled through the deficiency letter that the original filing did not provide sufficient support on several key issues.
Ridgeline’s seven-witness direct testimony filed on December 5, 2022 provided a substantial foundation. The testimony addressed corporate need, cost of service, engineering, tariff design, ROE, and related matters. However, the deficiency letter exposes gaps in the record, particularly with respect to ROE support, load factor justification, IT rate derivation, capacity release, NAESB compliance, creditworthiness, segmentation, GHG cost recovery, and Order No. 2222 implications.
The tariff redesign led by Braswell Energy Consulting Group LLC, with Dr. Raymond Braswell as lead consultant, is the principal vehicle for curing these deficiencies. The redesigned filing should not be limited to tariff sheets. It should include updated exhibits, supplemental testimony, workpapers, revised cost-of-service schedules, and a narrative explanation tying each revision to the relevant deficiency item and NGA § 4 burden.
B. Strategic Considerations on Rate Level
The shift from the original $0.2265 per Dth rate to the redesigned $0.3140 per Dth rate represents a 38.6% increase in the per-unit rate. This increase occurs despite a reduction in proposed ROE from 14.00% to 12.50%.
The increase is driven primarily by two factors:
1. billing determinants decrease from 438,000,000 Dth/year to 328,500,000 Dth/year because the assumed load factor decreases from 100% to 75%; and
2. the total cost of service increases from $97.36 million to $103.15 million, driven in part by revised O&M, A&G, and revenue credit assumptions.
Settlement discussions reveal a gap of approximately $0.058 per Dth between Ridgeline’s floor of $0.3140 per Dth and the ATPC/MGPC ceiling of approximately $0.2560 per Dth. That gap is meaningful in both economic and litigation terms.
If the rate is contested at hearing, each input will be examined independently. Intervenors are likely to focus on ROE, load factor, revenue credits, income tax allowance, and interconnection cost allocation. Ridgeline should be prepared to show that the final rate is within the zone of reasonableness and that each component is independently supportable.
C. Procedural Timeline and Deadlines
The proceeding has been dormant since ALJ Whitfield’s stay order dated February 6, 2023. Three extensions have been granted. The current deadline for the redesigned tariff and supplemental testimony is February 21, 2025.
ALJ Whitfield’s third extension order, dated March 4, 2024, imposed conditions, including quarterly status reports. Three status reports have been filed to date:
• June 15, 2024;
• September 14, 2024; and
• December 13, 2024.
Upon filing of the redesigned tariff, the ALJ will presumably lift the stay and resume the Track II procedural schedule. Settlement discussions may continue in parallel before Settlement Judge Howard Margolis. Ridgeline should assume that both tracks will remain active: settlement discussions may narrow disputed issues, but the company must be prepared for a fully litigated hearing if settlement is not achieved.
D. Risk of FERC Rejection or Modification
FERC has authority under NGA § 4(e) to suspend and investigate filed rates. Even if the redesigned tariff is accepted for filing, it may still be suspended and set for hearing. Acceptance for filing should not be equated with merits approval.
Key risk factors include:
• the higher redesigned recourse rate of $0.3140 per Dth;
• the 75% load factor assumption, particularly because actual utilization is approximately 56.67%;
• the revised 12.50% ROE, which remains above ATPC’s 10.75% proposal and MGPC’s 11.25% proposal;
• the reduction in revenue credits from $16.10 million to $6.00 million;
• the appropriateness of the income tax allowance given Ridgeline’s LLC structure and Cayman ownership;
• the interconnection cost allocation dispute with ATPC; and
• the completeness of revised open-access tariff provisions.
FERC may ultimately impose a rate within the zone of reasonableness that differs from Ridgeline’s proposal. The litigation strategy should therefore preserve the strongest possible evidentiary support for Ridgeline’s preferred rate while identifying settlement positions that protect the project’s economics and financing covenants.
IX. Recommendations
We recommend the following actions:
1. Complete all deficiency responses before the February 21, 2025 deadline.
The redesigned tariff filing should address all fourteen deficiency items comprehensively. Each item should be cross-referenced to tariff language, testimony, exhibits, and workpapers.
2. Coordinate closely with Braswell Energy Consulting Group.
Braswell should finalize the updated DCF proxy group analysis, revised cost-of-service model, billing determinant support, WACC calculation, and rate design explanation. The model should be audit-ready and internally consistent with FERC Form 2 data.
3. Prepare targeted supplemental testimony.
Dr. Natasha Orlov should sponsor revised tariff provisions, including capacity release, NAESB compliance, EBB, shipper-must-have-title, segmentation, creditworthiness, GHG cost recovery, and Order No. 2222 responses. Angela Moretti should sponsor the revised cost of service, revenue credits, rate base reconciliation, and billing determinant schedules.
4. Evaluate the defensibility of the 75% load factor.
Actual throughput is approximately 680 MMcf/d, or 56.67% utilization of 1.2 Bcf/d design capacity. Ridgeline should determine whether the 75% assumption can be supported through contract demand, shipper commitments, production forecasts, seasonal ramp-up evidence, or market studies. If not, FERC staff may view the assumption as optimistic.
5. Continue settlement discussions.
Ridgeline should continue discussions to narrow the approximately $0.058 per Dth gap between its $0.3140 per Dth position and the ATPC/MGPC $0.2560 per Dth ceiling. A contested hearing presents uncertainty because Ridgeline bears the full NGA § 4 burden.
6. Manage lender communications.
Communications with Pinnacle National Bank, Harborview Capital Management LLC, and Sentinel Ridge Fund LP should accurately reflect the status of the FERC proceeding. The September 15, 2021 credit facility includes regulatory covenant implications, and lenders should not receive communications that overstate procedural certainty or Commission approval.
X. Conclusion
NGA § 4 places the full burden of proof on Ridgeline to demonstrate that its proposed initial recourse rate and tariff terms are just and reasonable and not unduly discriminatory or preferential. Because Ridgeline is filing its first FERC Gas Tariff, Original Volume No. 1, it cannot rely on any prior approved rate as a baseline.
The tariff redesign strategy, led by Calderwood & Harkness and supported by Braswell Energy Consulting Group LLC, is designed to build a comprehensive evidentiary record that satisfies both the January 19, 2023 deficiency letter and Ridgeline’s NGA § 4 burden. The redesigned filing must be more than a corrective tariff submission; it must function as the evidentiary foundation for settlement, staff review, and any litigated hearing.
Ridgeline should be prepared for a fully litigated hearing on rate and interconnection issues if settlement efforts do not close the gap among the parties. The most important near-term objective is to ensure that the February 21, 2025 filing is complete, internally consistent, and supported by testimony and exhibits sufficient to withstand FERC and intervenor scrutiny.
Appendix A: Key Statutory and Regulatory Provisions
Natural Gas Act § 4, 15 U.S.C. § 717c — Selected Excerpts
18 C.F.R. Part 154 — Selected Sections
18 C.F.R. Part 284, Subpart G — Selected Sections
Appendix B: Table of FERC Precedent Cited
Appendix C: Summary of FERC Deficiency Letter
FERC Deficiency Letter Date: January 19, 2023 Proceeding: Ridgeline Midstream Services LLC, Docket Nos. RP22-847-000 and RP22-847-001 Current Status: Eight items addressed in partial response filed March 15, 2023; six items pending in comprehensive tariff redesign.
Appendix D: Ridgeline Cost-of-Service Summary — Original vs. Revised
Exhibit | Description | Relevance to Ridgeline Filing
Exhibit A | Statement of costs and revenues | Shows total cost of service, revenue requirement, revenue credits, and proposed recovery
Exhibit B | Rate base data | Supports original cost, net plant, working capital, ADIT, and other rate base items
Exhibit C | Operating expenses | Supports O&M, A&G, taxes other than income, and related expense categories
Exhibit D | Rate of return | Supports capital structure, cost of debt, return on equity, and weighted average cost of capital
Exhibit E | Depreciation and amortization | Supports depreciation rate, depreciation expense, accumulated depreciation, and plant life assumptions
Exhibits F through P | Additional system and operational data | Include system maps, throughput data, gas supply information, operating statistics, accounting schedules, and related support
Component | Amount
Original construction cost | $587.20 million
Less: accumulated depreciation | ($23.49 million)
Net plant in service | $563.71 million
Working capital allowance | $18.64 million
Less: ADIT | ($12.45 million)
Other rate base items | $42.50 million
Total rate base | $612.40 million
Expense Category | Original Test-Year Amount | Revised Redesign Amount
O&M expense | $12.44 million | $13.92 million
A&G expense | $4.82 million | $5.14 million
Taxes other than income | $3.80 million | $3.80 million
Version | Date | Status
V1.0 | July 2022 | Initial draft exchanged with ATPC
V2.0 | December 2022 | Revised draft reflecting operational and cost-allocation comments
V3.0 | April 2023 | Current draft used for tariff redesign and rate schedule analysis
Provision | Summary
NGA § 4(a) | Requires all rates and charges for jurisdictional natural gas transportation and sales to be just and reasonable. Declares unjust and unreasonable rates unlawful. Prohibits undue discrimination and preference.
NGA § 4(c) | Requires natural gas companies to file schedules showing rates, charges, classifications, practices, regulations, and contracts affecting jurisdictional service.
NGA § 4(d) | Requires thirty days’ notice before changes to rates, charges, classifications, or service terms, unless FERC grants waiver for good cause.
NGA § 4(e) | Authorizes FERC to suspend filed rates for up to five months, set matters for hearing, allow rates to become effective subject to refund, and places the burden of proof on the natural gas company.
Regulation | Summary
18 C.F.R. § 154.1 | Defines scope and applicability of Part 154 tariff requirements. Includes filing requirements for rate schedules and agreements affecting jurisdictional service.
18 C.F.R. § 154.7 | Specifies general filing requirements, including statement of nature of filing, tariff records, supporting information, requested effective date, and verification.
18 C.F.R. § 154.101 et seq. | Establishes tariff format, organization, and submission requirements.
18 C.F.R. § 154.201 et seq. | Governs tariff changes and related filing requirements.
18 C.F.R. § 154.312 | Addresses materials required for rate changes and cost-of-service support.
Regulation | Summary
18 C.F.R. Part 284, Subpart G | Governs transportation by interstate pipelines under blanket certificates and open-access requirements.
18 C.F.R. § 284.221 | Provides blanket certificate authority for interstate pipelines to provide certain transportation services.
18 C.F.R. § 284.8 | Addresses release of firm capacity on interstate pipelines.
18 C.F.R. § 284.12 | Incorporates NAESB standards and business practice requirements.
18 C.F.R. § 284.13 | Addresses reporting and posting requirements, including electronic bulletin board obligations.
Authority | Citation / Docket | Key Holding or Principle
Federal Power Commission v. Hope Natural Gas Co. | 320 U.S. 591 (1944) | Rates are judged by their end result; rates must allow the utility an opportunity to maintain financial integrity and attract capital while protecting consumers.
Bluefield Water Works & Improvement Co. v. Public Service Commission | 262 U.S. 679 (1923) | A regulated utility is entitled to earn a return comparable to enterprises with corresponding risks and sufficient to maintain credit and attract capital.
Permian Basin Area Rate Cases | 390 U.S. 747 (1968) | Confirms broad Commission discretion in setting just and reasonable rates within a zone of reasonableness.
City of Winnfield v. FERC | 744 F.2d 871 (D.C. Cir. 1984) | Discusses burden and evidentiary requirements in Commission rate proceedings.
ANR Pipeline Co. | FERC natural gas pipeline rate precedent | Reflects Commission application of cost-of-service principles, including rate base, return, and billing determinant review.
Vireo Industries. | FERC natural gas pipeline rate precedent | Addresses pipeline rate design, cost allocation, and revenue requirement principles.
Kern River Gas Transmission Co. | FERC certificate and rate precedent | Illustrates Commission review of new pipeline rates, risk, ROE, and certificate-related rate issues.
Policy Statement on Composition of Proxy Groups for Determining Gas and Oil Pipeline Return on Equity | 123 FERC ¶ 61,048 (2008) | Provides guidance on proxy group co

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