UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION
RIDGELINE MIDSTREAM SERVICES LLC PARTIAL RESPONSE TO DEFICIENCY LETTER DATED JANUARY 19, 2023
(Items 1–4 and 7–10)
Filed: March 15, 2023
Filed by Calderwood & Harkness LLP, 1601 K Street NW, Suite 900, Washington, DC 20006, on behalf of Ridgeline Midstream Services LLC, 700 Kanawha Boulevard East, Suite 1400, Charleston, WV 25301. Counsel of Record: George Trujillo, Responsible Partner, Energy & Infrastructure; Brett Callahan, Lead Associate; David Stanton, Working Associate. Billing Partner: Patricia Dunmore. C&H Matter No. 1016-00005.
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I. INTRODUCTION AND PROCEDURAL BACKGROUND
A. Nature of This Filing
Ridgeline Midstream Services LLC ("Ridgeline" or "Applicant"), a Delaware limited liability company and wholly owned subsidiary of Dunmore Energy Holdings Ltd. ("DEH"), a Cayman Islands exempted limited company (Cayman Registry No. CR-381204), hereby submits this Partial Response to the Deficiency Letter issued by the Commission's Office of Energy Market Regulation on January 19, 2023 ("Deficiency Letter"), in the above-captioned proceedings. This Partial Response is filed pursuant to Rule 2001(a) of the Commission's Rules of Practice and Procedure, 18 C.F.R. § 385.2001(a), and in compliance with the filing requirements set forth in 18 C.F.R. Parts 154, 157, and 284.
This filing addresses eight (8) of the fourteen (14) deficiency items identified in the Deficiency Letter, specifically: Items 1, 2, 3, 4, 7, 8, 9, and 10. Ridgeline has devoted substantial effort to preparing thorough and responsive submissions on each of these items, including the preparation of updated cost-of-service analyses, new tariff provisions, supporting engineering data, and draft interconnection agreements. For each deficiency item addressed herein, Ridgeline has provided proposed tariff language revisions and supporting workpapers, as detailed in Appendices A through H attached hereto.
Ridgeline respectfully advises the Commission, the Administrative Law Judge, and all parties of record that Items 5, 6, 11, 12, 13, and 14 require additional analysis and stakeholder coordination that could not be completed within the timeframe for this filing. These remaining items involve complex tariff development issues, including capacity release provisions, NAESB standards compliance, creditworthiness requirements, segmentation and flexible receipt/delivery point provisions, greenhouse gas emission cost recovery, and distributed energy resource aggregation considerations. Ridgeline intends to address those items in a subsequent filing and is contemporaneously filing a separate Motion for Extension of Time requesting a 120-day extension, to and including August 28, 2023, for the submission of responses to the remaining deficiency items.
B. Summary of Proceeding
On May 12, 2022, Ridgeline filed an application under Sections 4 and 7 of the Natural Gas Act ("NGA"), 15 U.S.C. §§ 717c, 717f, and the Commission's regulations at 18 C.F.R. Parts 154, 157, and 284, seeking two forms of authorization:
(a) Approval of an initial tariff rate for interstate transportation service on the Ridgeline Pipeline System under its FERC Gas Tariff, Original Volume No. 1, including firm transportation (Rate Schedule FT-1) and interruptible transportation (Rate Schedule IT-1) service offerings (Docket No. RP22-847-000); and
(b) Authorization for physical interconnection with Appalachian Trunk Pipeline Company, LLC ("ATPC") at the Wetzel County Interconnect, located in Wetzel County, West Virginia (Docket No. RP22-847-001).
Ridgeline proposed an initial recourse rate of $0.2265 per dekatherm ("Dth"), comprising a reservation charge of $0.2223/Dth and a usage charge of $0.0042/Dth. This rate was derived from a cost of service of $97.36 million and billing determinants of 438,000,000 Dth per year, calculated as the product of the system's design capacity of 1,200,000 Dth per day, multiplied by 365 days, at a 100% load factor. The total rate base as filed was $612.40 million.
The Ridgeline Pipeline System consists of a 187-mile, 24-inch-diameter high-pressure natural gas transmission pipeline extending from its receipt point at the Wetzel County Interconnect in Wetzel County, West Virginia, to its delivery point at the Waynesburg Compressor Station in Greene County, Pennsylvania. The system has a certificated design capacity of 1.2 billion cubic feet per day ("Bcf/d") and currently operates at a throughput of approximately 680 million cubic feet per day ("MMcf/d"). The system includes three compressor stations — the Wetzel Compressor Station, the Mannington Compressor Station, and the Waynesburg Compressor Station — with aggregate installed compression of 45,000 horsepower ("HP"). The Ridgeline Pipeline System has been in commercial service since October 1, 2021, with an original construction cost of $587.2 million. Ridgeline's FERC Code is 960442, and its Employer Identification Number ("EIN") is 87-4231956.
C. Procedural History Leading to This Filing
The following summarizes the key procedural milestones in this proceeding leading to the filing of this Partial Response:
June 14, 2022: The Commission issued a Notice of Filing and established a comment period, with motions to intervene and protests due by August 15, 2022.
July 28, 2022: The Mountainside Gas Producers Coalition ("MGPC"), a coalition of natural gas producers with operations in the Appalachian Basin, filed a timely motion to intervene, asserting interests as current and prospective shippers on the Ridgeline Pipeline System.
August 1, 2022: The Clearwater Municipal Gas Authority ("CMGA"), a municipal gas distribution authority serving residential and commercial customers in northeastern Pennsylvania, filed a timely motion to intervene, asserting interests as an end-use consumer affected by transportation rates on the Ridgeline system.
August 15, 2022: Appalachian Trunk Pipeline Company, LLC ("ATPC"), the operator of the interconnecting mainline pipeline system, filed a protest and motion to intervene, contesting the proposed interconnection configuration and cost allocation at the Wetzel County Interconnect, as well as certain aspects of Ridgeline's proposed rate design.
September 22, 2022: The Commission issued an order granting all motions to intervene, establishing a Track II procedural schedule for the consolidated proceedings, and appointing Settlement Judge Howard Margolis to explore settlement possibilities among the parties.
November 14, 2022: Chief Administrative Law Judge Clara Whitfield was appointed to preside over the consolidated hearing proceedings. A prehearing conference was held on the same date, at which the parties discussed the procedural schedule, discovery protocols, and the scope of contested issues.
December 5, 2022: Ridgeline filed its pre-filed direct testimony of seven witnesses, including Dr. Raymond Braswell (cost of capital and return on equity), Thomas Greaves (engineering and operations), and five additional witnesses addressing cost of service, rate design, market conditions, regulatory policy, and environmental compliance.
January 9, 2023: ATPC, MGPC, and CMGA filed their respective answering testimonies. Among other contentions, ATPC proposed a return on equity of 10.75%, MGPC (through the testimony of Dr. Eleanor Vasquez) proposed a return on equity of 11.25%, and CMGA raised concerns regarding the derivation of interruptible transportation rates and the adequacy of penalty revenue crediting provisions.
January 19, 2023: The Commission's Office of Energy Market Regulation issued the Deficiency Letter identifying fourteen (14) items requiring additional information, clarification, or revised tariff provisions.
February 6, 2023: ALJ Whitfield issued an order staying the procedural schedule, including all discovery deadlines and the hearing date, pending Ridgeline's response to the Deficiency Letter. The order provided that the procedural schedule would be reset following the Commission's disposition of Ridgeline's deficiency response.
D. Organization of This Response
This Partial Response is organized by deficiency item number. Each section below reproduces the relevant portion of the Deficiency Letter, followed by Ridgeline's substantive response, including any proposed revised or supplemental tariff sheets, supporting data, and cross-references to attached appendices. To the extent that any response implicates an issue addressed in another deficiency item, cross-references are provided for the convenience of the Commission and the parties.
Attached to this filing are Appendices A through H, which contain supporting workpapers, proposed tariff language revisions, supplemental exhibits, engineering data, and other materials referenced throughout this Partial Response. A summary index of the appendices is provided in Section XIV of this filing.
II. RESPONSE TO DEFICIENCY ITEM 1: UPDATED ROE SUPPORT
A. Text of Deficiency Item 1
The Deficiency Letter states, in pertinent part:
Item 1 — Updated Return on Equity Support. Ridgeline's proposed 14.00% return on equity ("ROE") was supported only by a proxy group discounted cash flow ("DCF") analysis using dividend yield and expected growth rate data through year-end 2021, as set forth in the pre-filed direct testimony of Dr. Raymond Braswell. The Commission requires updated ROE support reflecting current capital market conditions. Ridgeline is directed to submit an updated proxy group DCF analysis utilizing the most recent available data, and to demonstrate that its proposed ROE falls within the resulting zone of reasonableness.
B. Ridgeline's Response
1. Acknowledgment and Summary of Remedial Action
Ridgeline acknowledges that the original DCF proxy group analysis, submitted with the pre-filed direct testimony of Dr. Raymond Braswell on December 5, 2022, utilized dividend yield and expected growth rate data through December 31, 2021. At the time of the original filing, those data represented the most current full-year dataset available and were drawn from publicly available financial disclosures of the proxy group companies. However, Ridgeline recognizes that the Commission requires current capital market data in support of a proposed ROE, and that the passage of time between the original data and the filing of the application necessitates an update.
Accordingly, Ridgeline has prepared and is filing herewith an updated DCF proxy group analysis utilizing dividend yield and expected growth rate data through December 31, 2022. The updated analysis was prepared under the direction of Dr. Raymond Braswell of Braswell Energy Consulting Group LLC, who continues to serve as Ridgeline's expert witness on cost of capital matters. Dr. Braswell's updated workpapers are attached as Appendix A to this filing.
2. Updated DCF Proxy Group Analysis
The proxy group used in the updated analysis was selected in accordance with the Commission's established criteria for proxy group construction in natural gas pipeline rate proceedings. The following selection criteria were applied:
(a) FERC-Jurisdictional Status. Each proxy company is a FERC-jurisdictional natural gas pipeline company or a parent entity deriving a substantial portion of its revenues from FERC-jurisdictional natural gas pipeline operations.
(b) Publicly Traded Equity. Each proxy company's equity securities are publicly traded on a major U.S. securities exchange, providing reliable market data for the DCF analysis.
(c) Comparability. Each proxy company is comparable to Ridgeline in terms of size, risk profile, business mix, and geographic operations, with a focus on midstream natural gas gathering, processing, and transportation companies operating in the Appalachian Basin and adjacent regions.
(d) Data Availability. Sufficient and reliable data on dividend yields, expected earnings growth rates, and capital structure are available for each proxy company through widely recognized financial data services.
The updated proxy group consists of nine (9) companies spanning the midstream natural gas gathering, processing, and transportation sectors. The group includes both master limited partnerships and C-corporations, consistent with Commission precedent permitting the use of a mixed-structure proxy group where the resulting data provide a reliable basis for estimating the cost of equity.
Based on the updated DCF analysis using data through December 31, 2022, the resulting median ROE for the proxy group is 13.75%, with a range of reasonableness spanning from approximately 13.00% to 14.50%. The updated data reflect the effects of rising interest rates, inflationary pressures, and evolving capital market conditions during 2022, all of which have affected dividend yields and expected growth rates for midstream energy companies. Despite these market changes, the updated analysis continues to support a return on equity in the range proposed by Ridgeline.
Ridgeline maintains its proposed ROE of 14.00% as falling within the zone of reasonableness established by the updated proxy group DCF analysis. The proposed ROE is above the median by 25 basis points, which Ridgeline submits is appropriate in light of the project-specific risks associated with the Ridgeline Pipeline System, including: (i) its status as a relatively new-entrant pipeline (in service since October 1, 2021) without the benefit of an established long-term operating history; (ii) the ongoing interconnection negotiations with ATPC, which introduce regulatory and commercial uncertainty; (iii) exposure to volumetric risk in the Appalachian Basin production market; and (iv) the substantial capital investment of $587.2 million in original construction costs.
The complete updated DCF proxy group workpapers, including individual company dividend yields, growth rates, resulting DCF estimates, and statistical summaries, are set forth in Appendix A.
3. Original Filing Parameters (Retained)
While the ROE analysis has been updated as described above, the remaining components of Ridgeline's proposed capital structure and cost of capital remain as originally filed:
Capital Structure: 55% equity / 45% debt. This capital structure reflects the actual capitalization of the Ridgeline Pipeline System as of the filing date and is consistent with the capital structures employed by comparable midstream natural gas pipeline companies in the proxy group.
Cost of Debt: 5.25%, representing the weighted average cost of Ridgeline's outstanding debt obligations, consisting of:
(i) A $400 million senior secured term loan facility bearing interest at SOFR plus 325 basis points, provided by a lending syndicate led by Pinnacle National Bank, N.A. (as administrative agent), with participation by Granite Trust Company and Lakeshore Capital Bank; and
(ii) $150 million in aggregate principal amount of 7.875% Second Lien Senior Secured Notes due 2029, held by Harborview Capital Management LLC and Sentinel Ridge Fund LP.
Weighted Average Cost of Capital ("WACC"): Based on the proposed capital structure and the proposed ROE of 14.00%, the overall WACC is calculated as follows:
WACC = (0.55 × 14.00%) + (0.45 × 5.25%) = 7.70% + 2.3625% = 10.0625%
Return on Rate Base: Applying the 10.0625% WACC to the total rate base of $612.40 million yields a return on rate base of approximately $61.62 million, which is included in the $97.36 million cost of service supporting the proposed recourse rate.
Ridgeline reserves the right to further update the ROE analysis, capital structure assumptions, or cost of debt parameters in connection with any comprehensive tariff redesign filing addressing the remaining deficiency items or in response to material changes in capital market conditions.
4. Response to Intervenor ROE Proposals
Ridgeline acknowledges that the intervenors in this proceeding have proposed substantially lower returns on equity in their answering testimony. Specifically, ATPC proposed an ROE of 10.75%, and MGPC, through the testimony of Dr. Eleanor Vasquez, proposed an ROE of 11.25%. Both proposals would result in significant reductions to Ridgeline's cost of service and revenue requirement.
Ridgeline respectfully submits that both intervenor proposals fall below the zone of reasonableness for a new-entrant pipeline system in the Appalachian Basin. The proposals fail to account adequately for the heightened project-specific risks faced by Ridgeline, including construction cost exposure, volumetric risk associated with evolving Appalachian Basin production profiles, regulatory uncertainty surrounding the pending interconnection arrangement with ATPC, and the competitive dynamics of the midstream gas pipeline market in the region. An ROE that does not adequately compensate Ridgeline for these risks would fail to satisfy the requirements of Bluefield Water Works & Improvement Co. v. Public Service Commission, 262 U.S. 679 (1923), and Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591 (1944), which require that a regulated entity be afforded the opportunity to earn a return sufficient to attract capital on reasonable terms and commensurate with returns on investments of comparable risk.
Notwithstanding its position on the merits of its proposed ROE, Ridgeline notes its willingness to discuss the ROE and other cost-of-service issues through the settlement process before Settlement Judge Howard Margolis, consistent with the Commission's policy favoring negotiated resolution of contested rate matters. Ridgeline remains committed to reaching a just and reasonable resolution of these issues.
III. RESPONSE TO DEFICIENCY ITEM 2: FL&U TRACKER MECHANISM
A. Text of Deficiency Item 2
The Deficiency Letter states, in pertinent part:
Item 2 — Fuel-Use and Lost-and-Unaccounted-For Gas Tracker Mechanism. The proposed tariff fails to include a fuel-use and lost-and-unaccounted-for gas ("FL&U") tracker mechanism as required for pipeline tariffs offering firm transportation service under Part 284, Subpart G of the Commission's regulations. Interstate natural gas pipelines providing firm transportation service are required to maintain a mechanism for the recovery of fuel consumed in the transportation of gas and for gas lost or otherwise unaccounted for during the course of transportation. Ridgeline is directed to propose FL&U tracker provisions for inclusion in its FERC Gas Tariff, including an initial fuel retention percentage, lost-and-unaccounted-for percentage, and annual true-up procedures.
B. Ridgeline's Response
1. Overview of Proposed FL&U Tracker
Ridgeline acknowledges that its originally filed tariff did not include an FL&U tracker mechanism and recognizes the necessity of such a mechanism for a pipeline offering firm and interruptible transportation services under Part 284, Subpart G of the Commission's regulations. Ridgeline proposes to remedy this deficiency by adding a new Section 21 to the General Terms and Conditions of its FERC Gas Tariff, Original Volume No. 1, establishing an FL&U tracker mechanism applicable to all transportation services on the Ridgeline Pipeline System.
The proposed FL&U tracker will apply to all firm transportation service under Rate Schedule FT-1 and all interruptible transportation service under Rate Schedule IT-1. Under the tracker mechanism, Ridgeline will retain a specified percentage of each shipper's scheduled quantities to account for compressor fuel consumption and gas losses during transportation. The mechanism is designed to ensure that Ridgeline neither profits from nor is penalized by fluctuations in actual fuel consumption and gas losses relative to the estimated percentages, through an annual true-up process.
2. Design Elements
The proposed FL&U tracker incorporates the following key design elements:
Fuel Retention Percentage. Ridgeline proposes an initial fuel retention percentage of 2.0% of scheduled quantities. This percentage is based on engineering estimates of compressor fuel consumption at the three compressor stations comprising the Ridgeline Pipeline System: the Wetzel Compressor Station (15,000 HP installed compression), the Mannington Compressor Station (15,000 HP installed compression), and the Waynesburg Compressor Station (15,000 HP installed compression). The fuel retention percentage accounts for the natural gas consumed as fuel in operating the gas turbine-driven centrifugal compressor units at each station, based on projected operating conditions including throughput levels, discharge pressures, ambient temperatures, and station configurations.
The proposed 2.0% fuel retention percentage is consistent with fuel retention percentages approved by the Commission for comparable pipeline systems of similar length, diameter, and compression configuration operating in the Appalachian Basin and Mid-Atlantic regions. The engineering basis for this estimate is described in the pre-filed direct testimony of Thomas Greaves, Ridgeline's Vice President of Engineering and Operations, and is further supported by the engineering data presented in Appendix B-1.
Lost-and-Unaccounted-For Gas ("LAUF"). Ridgeline proposes an initial LAUF percentage of 0.3% of scheduled quantities. The LAUF percentage accounts for measurement variances, meter calibration tolerances, pipeline blowdowns, and other gas losses that are inherent in the operation of a high-pressure natural gas pipeline system. The proposed 0.3% LAUF percentage is conservative and reflects Ridgeline's use of modern, high-accuracy ultrasonic flow measurement equipment at the Wetzel County Interconnect and at the Waynesburg delivery point, as well as its implementation of comprehensive leak detection and repair ("LDAR") protocols across the system.
Combined FL&U Percentage. The combined FL&U percentage under the proposed tracker is approximately 2.3% of scheduled quantities (2.0% fuel retention + 0.3% LAUF). Each shipper tendering gas for transportation on the Ridgeline Pipeline System will be required to deliver quantities in excess of its scheduled transportation quantities by an amount equal to the applicable FL&U percentage, or alternatively, to accept a corresponding reduction in delivered quantities at the delivery point.
Annual True-Up. The FL&U percentage will be subject to an annual true-up filing, consistent with Commission policy. Under the proposed mechanism, Ridgeline will submit an annual informational filing no later than April 1 of each year, reporting actual fuel consumption and LAUF data for the preceding calendar year. If actual fuel consumption and LAUF during the preceding year exceeded the amounts retained from shippers under the then-effective FL&U percentage, Ridgeline will be authorized to implement a surcharge to recover the under-collection. If actual fuel consumption and LAUF were less than the amounts retained, Ridgeline will credit the over-collection to shippers through a refund mechanism. Surcharges and credits will be applied to all transportation services on a prospective basis and will be reflected in the FL&U percentage applicable to the subsequent annual period.
Filing Mechanism. The annual informational filing will include: (i) a summary of actual fuel consumption at each compressor station; (ii) a summary of LAUF volumes system-wide; (iii) a comparison of actual FL&U volumes to retained FL&U volumes; (iv) a calculation of the over- or under-collection; and (v) the proposed adjusted FL&U percentage for the subsequent annual period. The filing will be made available to all shippers through the EBB (see Section VI, below) and will be subject to Commission review and approval.
3. Proposed Tariff Language
The proposed tariff language for the FL&U tracker mechanism, including the new General Terms and Conditions provisions establishing the tracker, the initial FL&U percentages, and the annual true-up procedures, is set forth in Appendix B to this filing. The proposed tariff sheets are presented in clean and redline format, with the redline reflecting additions to the currently filed tariff.
4. Engineering Support
The engineering basis for the proposed initial fuel retention percentage of 2.0% and LAUF percentage of 0.3% is supported by the analysis of Thomas Greaves, Ridgeline's Vice President of Engineering and Operations, as presented in his pre-filed direct testimony of December 5, 2022, and as further elaborated in the supplemental engineering data submitted herewith.
Mr. Greaves's analysis is based on the design specifications and projected operating conditions of the three compressor stations comprising the Ridgeline Pipeline System, which have an aggregate installed compression capacity of 45,000 HP. The analysis accounts for the following factors: (i) the heat rate and thermal efficiency of the gas turbine-driven centrifugal compressor units at each station; (ii) projected compression ratios based on design throughput and operating pressures; (iii) ambient temperature and elevation data for each station location; (iv) projected station run-hours and unit availability; and (v) pipeline segment pressure losses and hydraulic characteristics. The analysis also incorporates data from the system's initial operating period (October 1, 2021, through December 31, 2022), during which actual fuel consumption data were collected for calibration and validation of the engineering model.
The complete engineering support data are set forth in Appendix B-1 to this filing.
IV. RESPONSE TO DEFICIENCY ITEM 3: INTERRUPTIBLE TRANSPORTATION RATE DERIVATION
A. Text of Deficiency Item 3
The Deficiency Letter states, in pertinent part:
Item 3 — Interruptible Transportation Rate Derivation. The proposed tariff contains a placeholder for interruptible transportation ("IT") service rates under Rate Schedule IT-1, but does not include a complete rate derivation or identify the methodology used to derive IT rates from the firm transportation cost of service. Ridgeline is directed to provide a complete IT rate derivation, including the maximum and minimum IT rates, the methodology for converting the firm reservation charge to an IT-equivalent rate, and the proposed IT revenue crediting mechanism.
B. Ridgeline's Response
1. IT Rate Derivation Framework
Ridgeline acknowledges that the originally filed tariff included only a placeholder rate for Rate Schedule IT-1 and did not set forth a complete rate derivation or the methodology for calculating the maximum and minimum interruptible transportation rates. Ridgeline proposes to derive its IT-1 rate from the firm FT-1 recourse rate in a manner consistent with the Commission's established policy for the derivation of interruptible transportation rates from the underlying firm cost of service.
Under the proposed methodology, the maximum interruptible transportation rate will equal the sum of: (a) the maximum firm FT-1 reservation rate, expressed on a per-Dth basis (i.e., the daily FT-1 reservation charge, converted to a per-Dth rate by dividing by one day's billing determinants at the shipper's contracted Maximum Daily Quantity ("MDQ")); and (b) the applicable usage charge per Dth. This approach ensures that the maximum IT rate does not exceed the maximum cost that a firm shipper would incur for transporting an equivalent volume of gas on a per-unit basis, thereby preventing interruptible service from being priced above the cost of firm service and ensuring consistency with the cost-of-service framework underlying the firm rate.
Based on the recourse rate proposed in Ridgeline's original filing, the maximum IT-1 rate is calculated as follows:
Maximum IT-1 Rate = FT-1 Reservation-Equivalent Rate + FT-1 Usage Charge
Maximum IT-1 Rate = $0.2223/Dth + $0.0042/Dth = $0.2265/Dth
The minimum interruptible transportation rate is proposed as $0.0042/Dth, representing the usage charge only. The usage charge reflects the variable costs of providing transportation service, and establishing the minimum IT rate at this level ensures that all interruptible transportation transactions contribute at least to the recovery of variable costs associated with the incremental gas movement.
2. IT Revenue Crediting
Consistent with Commission policy, all revenues received from IT-1 service in excess of the variable costs of providing that service will be credited to firm FT-1 shippers through a periodic revenue crediting mechanism. The revenue crediting mechanism proposed by Ridgeline is as follows:
(a) Calculation of Creditable Revenues. The creditable IT revenue for each accounting period will be calculated as total IT-1 revenues collected during the period, less the variable costs attributable to IT service (i.e., the usage charge component multiplied by the volume of gas transported under IT-1 service).
(b) Pro-Rata Allocation. Creditable IT revenues will be allocated on a pro-rata basis to firm FT-1 shippers based on each shipper's contracted firm capacity (MDQ) as a percentage of total contracted firm capacity on the system.
(c) Crediting Period. IT revenue credits will be calculated and applied on an annual basis, with credits reflected in shippers' invoices following the completion of the annual accounting period.
This revenue crediting mechanism is further described in the context of the penalty revenue crediting mechanism discussed in Section IX of this filing (Response to Deficiency Item 10). Ridgeline has designed the IT revenue crediting and the penalty revenue crediting mechanisms to operate in a coordinated and transparent manner, with all creditable revenues reported through the EBB and annual filings.
3. IT Service Priority and Scheduling
Interruptible transportation service under Rate Schedule IT-1 will be provided on an as-available basis, subordinate to firm FT-1 service in all respects. IT service will be subject to curtailment or interruption at Ridgeline's sole discretion whenever the available capacity on the Ridgeline Pipeline System is insufficient to accommodate both firm and interruptible nominations. The scheduling priority of IT service will be as follows:
(a) Firm FT-1 service nominations will receive the highest scheduling priority and will be scheduled before any IT-1 nominations.
(b) Among IT-1 nominations, scheduling priority will be determined based on the IT rate offered by each shipper (highest rate receives highest priority), and in the event of a tie, on the basis of the chronological order of nomination receipt.
(c) IT nominations may be bumped by firm nominations received during the intraday nomination cycle, subject to applicable NAESB nomination timeline standards.
Curtailment provisions for IT service are consistent with the North American Energy Standards Board ("NAESB") Wholesale Gas Quadrant standards for interruptible service scheduling and curtailment, and will be set forth in the applicable provisions of the General Terms and Conditions.
4. Proposed Tariff Language
The complete proposed Rate Schedule IT-1, including the maximum and minimum IT rates, the rate derivation methodology, the IT revenue crediting mechanism, and the scheduling and curtailment provisions, is set forth in Appendix C to this filing. Supporting workpapers demonstrating the derivation of the maximum and minimum IT rates from the FT-1 cost of service are also included in Appendix C.
V. RESPONSE TO DEFICIENCY ITEM 4: LOAD FACTOR JUSTIFICATION
A. Text of Deficiency Item 4
The Deficiency Letter states, in pertinent part:
Item 4 — Load Factor Justification. Ridgeline's proposed recourse rate is based on billing determinants derived using a 100% load factor. The use of a 100% load factor results in billing determinants of 438,000,000 Dth per year, based on a design capacity of 1,200,000 Dth per day multiplied by 365 days. The Commission notes that Ridgeline's current actual throughput is substantially below design capacity. Ridgeline is directed to provide a detailed justification for the assumed 100% load factor, including data on contracted firm capacity and actual utilization, or, alternatively, to propose a revised load factor and demonstrate its impact on the per-unit recourse rate.
B. Ridgeline's Response
1. Justification for 100% Load Factor (As Filed)
Ridgeline's original filing employed a 100% load factor for billing determinant purposes, yielding total annual billing determinants of 438,000,000 Dth (1,200,000 Dth/d × 365 days × 100%). Ridgeline submits that the use of a 100% load factor is appropriate and well-supported for the following reasons:
First, the Ridgeline Pipeline System was designed, constructed, and certificated as a firm transportation pipeline intended to serve long-term firm shippers under binding precedent agreements. The system's design capacity of 1.2 Bcf/d reflects the aggregate firm capacity contracted by shippers who executed precedent agreements prior to the commencement of pipeline construction. The use of a 100% load factor for rate design purposes is consistent with the expectation that the full design capacity will be available for firm service and that firm shippers will contract for capacity at levels that, in the aggregate, fully subscribe the system over the long term.
Second, the use of a 100% load factor results in the lowest per-unit recourse rate, which benefits all shippers by minimizing the unit cost of firm transportation. A lower load factor assumption would increase the per-unit rate, potentially rendering the system less competitive relative to alternative transportation paths in the Appalachian Basin and placing an undue burden on shippers who have contracted for capacity at the full design level.
Third, the Commission has historically accepted 100% load factors for rate design purposes where the pipeline's design and marketing are oriented toward firm, demand-charge-based service, and where contracted firm capacity supports full subscription. Ridgeline's existing precedent agreements and expressions of interest from prospective shippers provide substantial support for the expectation of full system subscription.
2. Current Throughput Data
Ridgeline acknowledges that the current actual throughput on the Ridgeline Pipeline System is approximately 680 MMcf/d, representing approximately 56.67% utilization of the 1.2 Bcf/d design capacity. However, Ridgeline respectfully submits that actual throughput is not the appropriate measure for determining the load factor used in rate design for a firm transportation pipeline.
The distinction between actual throughput and billing determinants for rate design purposes is well established in Commission precedent. Actual throughput reflects the aggregate volume of gas physically transported on the system during a given period, including both firm and interruptible service volumes, and is influenced by factors such as market conditions, seasonal demand variations, shipper nomination patterns, and the availability of upstream gas supply. Billing determinants for rate design purposes, by contrast, reflect the contractual firm capacity commitments of shippers, which establish the demand-charge revenue base from which fixed costs are recovered.
To provide the Commission with a complete picture of the system's contractual and operational profile, Ridgeline offers the following data:
(a) Contracted Firm Capacity. As of the date of this filing, Ridgeline has executed firm transportation agreements (Rate Schedule FT-1 service agreements) representing contracted firm capacity of approximately 925,000 Dth/d, or approximately 77.1% of the system's 1,200,000 Dth/d design capacity.
(b) Firm Nominations. Average daily firm nominations during the twelve-month period ending December 31, 2022, were approximately 620,000 Dth/d, or approximately 67.0% of contracted firm capacity and 51.7% of design capacity.
(c) Interruptible Service. Average daily interruptible transportation volumes during the same period were approximately 60,000 Dth/d.
(d) Total Throughput. Total average daily throughput (firm plus interruptible) during the twelve-month period ending December 31, 2022, was approximately 680,000 Dth/d, or 56.67% of design capacity.
These data demonstrate that while actual throughput is currently below design capacity, contracted firm capacity substantially exceeds actual throughput, reflecting the typical pattern for a pipeline system that has been in service for approximately 15 months at the time of the original filing. Ridgeline anticipates that actual nominations and throughput will increase as the Appalachian Basin production market continues to develop and as additional shippers execute firm transportation agreements.
3. Alternative Load Factor Analysis
Notwithstanding its position that a 100% load factor is justified for rate design purposes, Ridgeline acknowledges the Commission's concerns and is evaluating alternative load factor assumptions as part of its broader assessment of rate design options. Ridgeline notes that certain intervenors in this proceeding have advocated for load factors of 85% or higher: ATPC proposed an 85% load factor in its answering testimony, while MGPC recommended a 90% load factor.
Ridgeline is analyzing the impact of various load factor assumptions on the per-unit recourse rate and presents the following sensitivity analysis for the Commission's consideration:
As the table demonstrates, the per-unit recourse rate is directly and inversely proportional to the assumed load factor. A reduction from 100% to 85% would increase the total recourse rate by approximately $0.0392/Dth, or 17.3%, representing a material increase in transportation costs for firm shippers. Ridgeline submits that such an increase would be unjustified in light of the system's firm contractual commitments and would disadvantage shippers who have contracted for capacity at levels supporting full design utilization.
Ridgeline previews that its comprehensive tariff redesign, if ultimately required to address the remaining deficiency items, may employ a different load factor assumption depending on the outcome of the settlement process and further analysis of system operational data. Ridgeline reserves the right to revise its billing determinants and load factor assumption in connection with the complete response to the remaining deficiency items or in any comprehensive tariff redesign filing.
4. Supporting Data
The complete load factor analysis, including historical throughput data by month for the period from October 2021 through December 2022, contracted firm capacity data, and the sensitivity table set forth above, is presented in Appendix D to this filing.
VI. RESPONSE TO DEFICIENCY ITEM 7: ELECTRONIC BULLETIN BOARD (EBB) REQUIREMENTS
A. Text of Deficiency Item 7
The Deficiency Letter states, in pertinent part:
Item 7 — Electronic Bulletin Board Requirements. The proposed tariff lacks provisions requiring Ridgeline to maintain and post information on an electronic bulletin board ("EBB"), as required by the Commission's regulations at 18 C.F.R. § 284.12 and the Commission's standards of conduct. Interstate natural gas pipelines providing open-access transportation services are required to maintain an Internet-accessible EBB and to post specified categories of information thereon, including available capacity, scheduled quantities, capacity release data, operational notices, and transactional reports. Ridgeline is directed to propose EBB provisions for inclusion in its FERC Gas Tariff.
B. Ridgeline's Response
1. Proposed EBB Provisions
Ridgeline acknowledges the omission and proposes to add a new Section 22 to the General Terms and Conditions of its FERC Gas Tariff, Original Volume No. 1, requiring Ridgeline to establish and maintain an Internet-based Electronic Bulletin Board in compliance with 18 C.F.R. § 284.12 and applicable NAESB Wholesale Gas Quadrant ("WGQ") standards. The proposed EBB provisions will obligate Ridgeline to make specified categories of information available to shippers, prospective shippers, and the public on a timely and non-discriminatory basis through a publicly accessible website.
Ridgeline advises the Commission that it has already commenced the development of its EBB platform and expects the platform to be operational within sixty (60) days of the Commission's acceptance of the proposed tariff provisions. In the interim, Ridgeline has been providing available capacity and operational information to shippers through direct electronic communications and postings on its corporate website, consistent with a good-faith effort to comply with the Commission's transparency requirements.
2. Content of EBB Postings
The proposed EBB provisions require Ridgeline to post the following categories of information on its EBB:
(a) Available Capacity. Available firm and interruptible capacity on each segment of the Ridgeline Pipeline System, updated on a daily basis and reflecting the most current scheduling information.
(b) Scheduled Quantities and Nominations. Aggregate scheduled quantities and nominations for each gas day, posted on a timely basis consistent with NAESB nomination timelines.
(c) Capacity Release Offers and Awards. Notices of capacity release offers by releasing shippers, including the terms and conditions of each offer, and notices of capacity release awards to replacement shippers, including the rate, term, and volume of each award.
(d) Operational Flow Orders. Notices of operational flow orders ("OFOs"), critical notices, and other operational directives issued by Ridgeline, including the effective time, duration, and specific requirements of each OFO.
(e) System Operational Data. Operational data for the Ridgeline Pipeline System, including receipt and delivery point pressures, temperatures, flow rates, and other relevant operational parameters, posted on a daily basis.
(f) Tariff Sheets and Rate Schedules. The complete FERC Gas Tariff, Original Volume No. 1, including all effective rate schedules, General Terms and Conditions, and any pending tariff filings, maintained in current form on the EBB.
(g) Index of Customers. An index of all shippers holding firm or interruptible service agreements on the Ridgeline Pipeline System, including the shipper's name, rate schedule, contracted capacity, receipt and delivery points, and contract term, posted and updated on a quarterly basis.
(h) Transactional Reports. Reports of transactions required by Order No. 637, Order No. 637-A, and subsequent orders, including discount transaction reports, negotiated rate transaction reports, and penalty revenue reports.
3. Technical Specifications
The proposed EBB will comply with the following technical specifications:
(a) NAESB WGQ Compliance. The EBB will comply with NAESB WGQ Version 3.2 electronic delivery mechanism standards, including the data content, format, and communication protocol standards established by the WGQ for pipeline EBB systems.
(b) Availability. The EBB will be available for access by shippers and the public on a 24-hour-per-day, 7-day-per-week basis ("24/7 availability"), except during scheduled maintenance windows. Scheduled maintenance windows will be disclosed in advance on the EBB and will be limited to the extent practicable to periods of low usage (e.g., weekends and overnight hours).
(c) Data Retention. Historical data will be retained on the EBB for a period of at least ninety (90) days from the date of initial posting. Archived data beyond the 90-day retention period will be available upon request to any shipper, prospective shipper, or Commission staff member, subject to reasonable retrieval timeframes.
(d) Security. The EBB will employ industry-standard security measures, including encryption of data in transit and at rest, user authentication and access controls, and monitoring for unauthorized access or data breaches.
4. Proposed Tariff Language
The complete proposed EBB tariff provisions, including the new General Terms and Conditions section establishing the EBB requirements, the categories of required postings, the technical specifications, and the data retention and archival provisions, are set forth in Appendix E to this filing.
VII. RESPONSE TO DEFICIENCY ITEM 8: SHIPPER-MUST-HAVE-TITLE PROVISIONS
A. Text of Deficiency Item 8
The Deficiency Letter states, in pertinent part:
Item 8 — Shipper-Must-Have-Title Provisions. The proposed tariff does not include adequate shipper-must-have-title provisions, as required by Commission policy and Order No. 712, Order No. 712-A, and related orders. Pipelines providing open-access transportation service are required to include tariff provisions ensuring that shippers hold title to gas at the time it is tendered for transportation, or that they have a contractual right to acquire title, in order to prevent the use of pipeline transportation capacity for speculative or non-physical purposes. Ridgeline is directed to propose shipper-must-have-title provisions for inclusion in its FERC Gas Tariff.
B. Ridgeline's Response
1. Overview of Proposed Shipper-Must-Have-Title Provisions
Ridgeline acknowledges the deficiency identified by the Commission and proposes to add a new Section 23 to the General Terms and Conditions of its FERC Gas Tariff, Original Volume No. 1, establishing comprehensive shipper-must-have-title provisions consistent with the Commission's policy articulated in Order No. 712, Order No. 712-A, and related orders. The proposed provisions are designed to ensure that each shipper utilizing transportation service on the Ridgeline Pipeline System holds valid title to the natural gas it tenders for transportation, or has an enforceable contractual right to acquire title to such gas, at the time the gas is scheduled at the receipt point.
The shipper-must-have-title requirement serves the important policy objective of ensuring that pipeline transportation capacity is used for the physical movement of gas by parties with a legitimate commercial interest in the commodity, rather than for speculative or paper-based transactions that could disrupt efficient pipeline operations and harm the interests of physical shippers.
2. Key Provisions
The proposed shipper-must-have-title provisions include the following key elements:
Title Demonstration Requirement. Each shipper tendering gas for transportation on the Ridgeline Pipeline System must demonstrate, at the time of nomination or upon request by Ridgeline, that it holds title to the gas to be transported, or that it has an enforceable agreement to acquire title to such gas prior to the gas being scheduled at the receipt point (including the Wetzel County Interconnect or any other designated receipt point on the system). Acceptable forms of title demonstration include: (i) ownership of producing properties from which the gas originates; (ii) a valid gas purchase agreement or supply contract; (iii) a valid exchange agreement; or (iv) any other arrangement that conveys or will convey title to the gas to the shipper prior to the scheduling of the gas for transportation.
Title Warranty in Service Agreement. The applicable firm (FT-1) or interruptible (IT-1) service agreement between Ridgeline and each shipper will include a representation and warranty by the shipper that it holds, or will hold at the time of scheduling, valid title to all gas tendered for transportation, or that it has an enforceable contractual right to acquire such title. This warranty is a material term of the service agreement, and a breach thereof will constitute a default under the service agreement.
Buy/Sell Arrangements. The proposed provisions address buy/sell transactions at the receipt point. Where a shipper acquires title to gas through a simultaneous buy/sell arrangement at the receipt point, the shipper will be deemed to have satisfied the title requirement provided that: (i) the buy/sell arrangement is documented by a written agreement; (ii) the shipper acquires title prior to, or simultaneously with, the scheduling of the gas at the receipt point; and (iii) the arrangement complies with the Commission's shipper-must-have-title policy as articulated in Order No. 712 and Order No. 712-A. Ridgeline will not accept nominations from shippers who propose to acquire title to gas at a point downstream of the receipt point where the gas is scheduled for transportation, as such an arrangement would be inconsistent with the shipper-must-have-title requirement.
Consequences of Non-Compliance. If a shipper is unable to demonstrate valid title to gas tendered for transportation, or if Ridgeline has reasonable grounds to believe that a shipper does not hold title to the gas, Ridgeline may refuse to schedule the quantities in question. In such event, Ridgeline will promptly notify the shipper of the basis for the refusal and will afford the shipper a reasonable opportunity (not to exceed twenty-four (24) hours) to cure the deficiency by providing documentation of title. Repeated failures to demonstrate title may constitute grounds for termination of the service agreement, subject to the dispute resolution provisions of the tariff.
Exceptions for Capacity Release Transactions. The shipper-must-have-title requirement will not apply to the releasing shipper in a capacity release transaction where the releasing shipper releases its firm capacity to a replacement shipper. In such transactions, the replacement shipper (i.e., the party that will actually tender gas for transportation using the released capacity) must satisfy the title requirement. This exception is consistent with the Commission's treatment of capacity release under Order No. 712 and ensures that releasing shippers are not burdened with title requirements for capacity they have released to third parties.
3. Proposed Tariff Language
The complete proposed shipper-must-have-title tariff provisions, including the new General Terms and Conditions section, the title demonstration requirements, the buy/sell transaction provisions, the non-compliance consequences, and the capacity release exception, are set forth in Appendix F to this filing.
VIII. RESPONSE TO DEFICIENCY ITEM 9: INTERCONNECTION AGREEMENT AS RATE SCHEDULE
A. Text of Deficiency Item 9
The Deficiency Letter states, in pertinent part:
Item 9 — Interconnection Agreement as Rate Schedule. The proposed interconnection agreement between Ridgeline and Appalachian Trunk Pipeline Company, LLC ("ATPC") for the physical interconnection at the Wetzel County Interconnect has not been filed as a rate schedule under the FERC Gas Tariff, as required by the Commission's regulations at 18 C.F.R. § 154.1(d) and applicable precedent. All agreements that materially affect or relate to the rates, terms, and conditions of jurisdictional service must be filed as rate schedules under the pipeline's FERC Gas Tariff. Ridgeline is directed to file the Interconnection Agreement with ATPC as a rate schedule, or to explain why such filing is not required.
B. Ridgeline's Response
1. Commitment to File as Rate Schedule
Ridgeline acknowledges the Commission's directive and the requirements of 18 C.F.R. § 154.1(d), which mandate that all contracts or agreements that in any manner affect or relate to the rates, terms, conditions, or privileges of service must be filed as rate schedules under the pipeline's FERC Gas Tariff. Ridgeline commits to filing the Interconnection Agreement between Ridgeline and ATPC for the Wetzel County Interconnect as Rate Schedule No. X-1 within the FERC Gas Tariff, Original Volume No. 1.
The Interconnection Agreement governs the physical interconnection between the Ridgeline Pipeline System and ATPC's existing 30-inch mainline pipeline system. The interconnection is located at the Wetzel County Interconnect, which constitutes Milepost 0.0 of the Ridgeline Pipeline System. The Ridgeline system ties into ATPC's mainline at ATPC Milepost 412.6, in Wetzel County, West Virginia. The interconnection facilities include meter stations, pig launchers/receivers, valves, piping, SCADA equipment, and associated infrastructure necessary to effectuate the bidirectional transfer of natural gas between the two pipeline systems.
2. Status of Interconnection Agreement Negotiations
Ridgeline filed a Draft Interconnection Agreement (Version 1.0) with its original application in July 2022. Since that time, Ridgeline and ATPC have been engaged in ongoing negotiations regarding the terms and conditions of the interconnection, including the allocation of interconnection facilities costs, technical specifications, operational protocols, and measurement standards. ATPC is represented in these negotiations by its outside counsel, Kellner, Royce & Dillard LLP, with William Pratt serving as Senior Partner on the matter.
While the parties have made substantial progress on many terms of the agreement, several key issues remain under negotiation:
Total Interconnection Facilities Cost. The estimated total cost of the interconnection facilities at the Wetzel County Interconnect is $22.3 million. This estimate includes the cost of constructing the physical interconnection piping, metering equipment, pressure regulation facilities, SCADA integration, and associated civil, mechanical, and electrical work.
Cost Allocation. The allocation of the $22.3 million interconnection facilities cost between Ridgeline and ATPC is the principal contested issue in the negotiations. Ridgeline has proposed a cost allocation of $7.6 million (34.1%) to Ridgeline and $14.7 million (65.9%) to ATPC. Ridgeline's proposed allocation is based on a "beneficiary pays" approach, reflecting the relative benefits that each pipeline system derives from the interconnection. ATPC has proposed an alternative cost allocation of 50/50, with each party bearing $11.15 million, arguing that the interconnection provides equal benefits to both systems. The parties have exchanged detailed position papers on this issue and have participated in two rounds of mediation sessions before Settlement Judge Margolis, but have not yet reached agreement.
Metering Equipment. The parties have agreed on the general metering configuration for the interconnection, which will include three (3) runs of 12-inch ultrasonic flow meters, gas chromatographs for gas quality determination, and full SCADA integration with both pipeline systems' control centers. The parties continue to negotiate the specifications for the gas chromatograph equipment, the calibration frequency, and the allocation of measurement responsibilities between the two operators.
Design Capacity at Interconnect. The interconnection has been designed with an initial bidirectional flow capacity of 800 MMcf/d, expandable to 1.2 Bcf/d through the addition of parallel piping and additional metering runs. The parties have agreed on the initial design capacity but are negotiating the terms and cost allocation for future expansion, including the trigger conditions under which expansion would be required and the mechanism for sharing expansion costs.
ATPC filed its protest and motion to intervene on August 15, 2022, in which it contested Ridgeline's proposed interconnection configuration and cost allocation. ATPC argued, among other things, that Ridgeline's proposed 34.1%/65.9% cost allocation is inequitable and fails to account for the capital investments that ATPC has already made in its mainline system to accommodate the interconnection. Ridgeline filed its Answer to ATPC's protest on October 17, 2022, defending its proposed cost allocation and providing supporting analysis.
3. Interim Filing
Given the ongoing nature of the interconnection negotiations, Ridgeline files herewith the current draft of the Interconnection Agreement (Version 2.0, dated December 2022) for informational purposes and as a placeholder filing under proposed Rate Schedule No. X-1 of the FERC Gas Tariff. Version 2.0 reflects the terms agreed to by the parties as of December 2022, with bracketed language indicating terms that remain under negotiation.
Ridgeline respectfully requests leave to substitute a final, executed Interconnection Agreement for the placeholder filing when negotiations are completed and the agreement is fully executed by both parties. In the alternative, if the interconnection cost allocation and other contested issues cannot be resolved through negotiation or settlement, Ridgeline requests that the Commission resolve the disputed issues in connection with its disposition of ATPC's protest, and that Ridgeline be permitted to file the Interconnection Agreement in the form approved by the Commission following such resolution.