UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION
RIDGELINE MIDSTREAM SERVICES LLC'S STATEMENT OF ISSUES
Filed: November 21, 2022
Submitted pursuant to the Prehearing Conference Order issued by the Honorable Clara Whitfield, Administrative Law Judge, on November 14, 2022, establishing the Track II procedural schedule and directing the parties to file Statements of Issues on or before November 21, 2022.
TABLE OF CONTENTS
I. Preliminary Statement
Ridgeline Midstream Services LLC ("Ridgeline" or "RMS"), 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 Statement of Issues in accordance with the Prehearing Conference Order dated November 14, 2022 (the "Prehearing Conference Order"), issued by the Honorable Clara Whitfield, Administrative Law Judge ("ALJ" or "Presiding Judge"). This Statement of Issues is filed in Docket Nos. RP22-847-000 and RP22-847-001, and identifies the contested issues that Ridgeline anticipates will be addressed during the Track II evidentiary hearing in this proceeding.
Ridgeline's principal office is located at 700 Kanawha Boulevard East, Suite 1400, Charleston, West Virginia 25301. Ridgeline's registered agent for service of process in the State of Delaware is Capitol Filings Inc., 1209 Orange Street, Wilmington, Delaware 19801. Ridgeline is registered with the Commission under FERC Code 960442.
On May 12, 2022, Ridgeline filed an application with the Federal Energy Regulatory Commission ("FERC" or the "Commission") in Docket Nos. RP22-847-000 and RP22-847-001 seeking two categories of authorization. First, in Docket No. RP22-847-000, Ridgeline sought approval of an initial tariff rate for interstate natural gas transportation service on its Ridgeline Pipeline System pursuant to Section 4 of the Natural Gas Act ("NGA"), 15 U.S.C. § 717c, and the Commission's regulations at 18 C.F.R. Parts 154 and 284. Second, in Docket No. RP22-847-001, Ridgeline sought authorization for physical interconnection with the existing pipeline network of Appalachian Trunk Pipeline Company, LLC ("ATPC") pursuant to NGA Section 7, 15 U.S.C. § 717f, and the Commission's regulations at 18 C.F.R. Part 157. These two docket numbers have been consolidated for purposes of this proceeding.
In connection with its application, Ridgeline filed its proposed FERC Gas Tariff, Original Volume No. 1, as a Part 284, Subpart G open-access transportation tariff. The proposed tariff includes an initial recourse rate of $0.2265 per dekatherm ("Dth"), consisting of a reservation charge component of $0.2223/Dth and a usage charge component of $0.0042/Dth. This proposed rate is derived from a total cost of service of $97.36 million and a rate base of $612.40 million, as set forth in the workpapers and supporting schedules filed with Ridgeline's application. The derivation of these figures, and the assumptions and methodologies underlying them, are among the contested issues identified below.
Following Ridgeline's May 12, 2022 filing, the Commission issued a Notice of Filing on June 14, 2022, which was published in the Federal Register on June 17, 2022. The Notice established an intervention and protest deadline of August 15, 2022, and invited comments from interested persons.
Three timely interventions were filed in this proceeding. On July 28, 2022, the Mountainside Gas Producers Coalition ("MGPC"), an unincorporated association of fourteen independent natural gas producers operating in the Marcellus and Utica shale formations in West Virginia, Ohio, and Pennsylvania, filed its motion to intervene. On August 1, 2022, the Clearwater Municipal Gas Authority ("CMGA"), a municipal authority organized under the Pennsylvania Municipality Authorities Act, filed its motion to intervene. On August 15, 2022, ATPC filed both a motion to intervene and a protest challenging various aspects of Ridgeline's application. ATPC's protest raised objections to, among other things, the proposed return on equity, capital structure, rate base, cost of service, rate design, interconnection cost allocation, and interconnection facility design. ATPC's protest is discussed further in the identification of contested issues set forth in Section IV below.
By order dated September 22, 2022, the Commission granted all three interventions, accepted ATPC's protest as timely filed, and set the matter for hearing under a Track II procedural schedule. In that same order, the Commission appointed the Honorable Howard Margolis as Settlement Judge pursuant to Rule 603 of the Commission's Rules of Practice and Procedure, 18 C.F.R. § 385.603, to facilitate settlement discussions among the parties. Settlement Judge Margolis's appointment remains in effect, and settlement discussions are ongoing, as discussed further in Section VI below.
On October 17, 2022, Ridgeline filed its answer to the ATPC protest, responding to each of the substantive objections raised by ATPC and defending the reasonableness and lawfulness of Ridgeline's proposed initial tariff rate and interconnection authorization request. Ridgeline's answer included supporting affidavits from Angela Moretti, Vice President of Finance and Treasurer of Ridgeline, and Thomas Greaves, Vice President of Engineering and Operations of Ridgeline.
On November 14, 2022, the Commission appointed the Honorable Clara Whitfield as the Presiding Administrative Law Judge for the Track II hearing in this proceeding. On that same date, Judge Whitfield held a prehearing conference at which all parties participated through their respective counsel. During the prehearing conference, Judge Whitfield discussed the procedural schedule, established deadlines for the filing of testimony and exhibits, and directed the parties to file their respective Statements of Issues on or before November 21, 2022. This filing is made in compliance with that directive.
For reference throughout this proceeding, the following FERC identification codes apply: Ridgeline's FERC Code is 960442; ATPC's FERC Code is 840117.
Ridgeline is represented in this proceeding by the law firm of Calderwood & Harkness LLP, 1601 K Street NW, Suite 900, Washington, DC 20006 (Calderwood & Harkness Matter No. 1016-00005). Counsel of record are as follows: George Trujillo, Responsible Partner; Brett Callahan, Lead Associate; and David Stanton, Working Associate. All communications regarding this proceeding should be directed to Calderwood & Harkness LLP at the address identified above.
II. Description of the Ridgeline Pipeline System
The Ridgeline Pipeline System (the "System" or the "Pipeline") is a newly constructed, 187-mile, 24-inch-diameter high-pressure natural gas pipeline extending from a receipt point at the Wetzel County Interconnect in Wetzel County, West Virginia (approximate coordinates: 39.6120° N, 80.7540° W) to a delivery point at the Waynesburg Compressor Station in Greene County, Pennsylvania (approximate coordinates: 39.8965° N, 80.1810° W). The Pipeline traverses primarily rural terrain across northern West Virginia and southwestern Pennsylvania, crossing portions of Wetzel, Marion, Monongalia, and Preston Counties in West Virginia, and portions of Greene County in Pennsylvania.
The System includes three compressor stations strategically located along the pipeline route to maintain operating pressure and throughput capacity. The Wetzel Station, located near the receipt point at Milepost 0.0 in Wetzel County, West Virginia, provides initial compression for gas received into the System. The Mannington Station, located at approximately Milepost 62.5 in Marion County, West Virginia, serves as an intermediate compression facility. The Waynesburg Station, located near the delivery point at approximately Milepost 187 in Greene County, Pennsylvania, provides final-stage compression. Together, these three stations provide aggregate installed compression of 45,000 horsepower ("HP"), utilizing Northgate Enterprises Taurus 70 gas turbine-driven centrifugal compressor units.
The System's design capacity is 1.2 billion cubic feet per day ("Bcf/d"), equivalent to 1,200,000 Dth/d at an assumed heating value of 1,000 British thermal units per cubic foot ("BTU/cf"). At maximum allowable operating pressure ("MAOP") of 1,440 pounds per square inch gauge ("psig"), the Pipeline is designed and constructed to accommodate the full design throughput of 1.2 Bcf/d under normal operating conditions.
As of the date of this filing, current throughput on the System is approximately 680 million cubic feet per day ("MMcf/d"), representing a utilization rate of approximately 56.67% of design capacity. The current utilization level reflects the early-stage nature of the System, which achieved commercial in-service on October 1, 2021. Ridgeline anticipates that throughput will increase as additional shipper commitments are secured and as the proposed interconnection with ATPC's system is completed and placed into service.
The original construction cost of the Ridgeline Pipeline System was $587.2 million. Construction commenced in April 2020 and was substantially completed in September 2021. The System achieved commercial in-service on October 1, 2021, following completion of all required hydrostatic testing, commissioning activities, and receipt of all necessary federal and state permits and approvals.
The System is financed through a combination of senior secured debt, subordinated secured debt, and equity contributions from DEH. The senior secured debt consists of a $400 million senior secured term loan and a $75 million revolving credit facility, pursuant to a Credit Agreement dated September 15, 2021, among Ridgeline Midstream Services LLC, as Borrower, Pinnacle National Bank, N.A., as Administrative Agent, and Granite Trust Company and Lakeshore Capital Bank, as Syndicate Lenders. The subordinated secured debt consists of $150 million in aggregate principal amount of 7.875% Second Lien Senior Secured Notes due 2030, issued on September 22, 2021, held by Harborview Capital Management LLC and Sentinel Ridge Fund LP. Equity capital of $37.2 million was contributed by DEH in connection with the initial capitalization of the System. The details of Ridgeline's capital structure and cost of capital are among the contested issues identified in Section IV below.
The Ridgeline Pipeline System was designed and constructed in compliance with all applicable provisions of 49 C.F.R. Part 192 (Pipeline Safety: Transportation of Natural and Other Gas by Pipeline), the U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration ("PHMSA") regulations, and all applicable state pipeline safety requirements. The System operates under a comprehensive integrity management program as required by 49 C.F.R. Part 192, Subpart O.
III. Identification of Parties and Counsel
The following is a list of all parties to this proceeding, together with their counsel of record, addresses, and other relevant identifying information, as required by the Prehearing Conference Order.
1. Applicant: Ridgeline Midstream Services LLC
Ridgeline Midstream Services LLC is a Delaware limited liability company, FERC Code 960442, with its principal office at 700 Kanawha Boulevard East, Suite 1400, Charleston, West Virginia 25301. Ridgeline is a wholly owned subsidiary of Dunmore Energy Holdings Ltd. ("DEH"), a Cayman Islands exempted limited company (Cayman Registry No. CR-381204). Ridgeline is the owner and operator of the Ridgeline Pipeline System, as described in Section II above, and is the applicant in this proceeding.
Counsel of Record:
Calderwood & Harkness LLP 1601 K Street NW, Suite 900 Washington, DC 20006 Telephone: (202) 555-1200 Facsimile: (202) 555-1201
George Trujillo, Responsible Partner
Email: gtrujillo@calderwoodharkness.com
Brett Callahan, Lead Associate
Email: bcallahan@calderwoodharkness.com
David Stanton, Working Associate
Email: dstanton@calderwoodharkness.com
Calderwood & Harkness Matter No. 1016-00005
2. Protestant/Intervenor: Appalachian Trunk Pipeline Company, LLC
Appalachian Trunk Pipeline Company, LLC is a Pennsylvania limited liability company, FERC Code 840117, with its principal office at 2200 Penn Center West, Suite 300, Pittsburgh, Pennsylvania 15276. ATPC is a subsidiary of Tidewater Infrastructure Partners LP, a Delaware limited partnership controlled by the Alderman family. Harrison J. Alderman serves as Chairman and Marcus R. Alderman serves as President and Chief Executive Officer of Tidewater Infrastructure Partners LP. ATPC owns and operates a 640-mile interstate natural gas pipeline system with a current system capacity of 3.8 Bcf/d, serving markets in the mid-Atlantic and Northeast regions of the United States. Sandra K. Fenton is ATPC's Vice President, Regulatory Affairs.
ATPC filed both a motion to intervene and a protest on August 15, 2022, contesting various aspects of Ridgeline's proposed initial tariff rate and interconnection authorization. ATPC's protest is the primary source of contested issues in this proceeding.
Counsel of Record:
Kellner, Royce & Dillard LLP One PPG Place, Suite 2800 Pittsburgh, Pennsylvania 15222 Telephone: (412) 555-3400 Facsimile: (412) 555-3401
William Pratt, Senior Partner
Email: wpratt@krd-law.com
3. Intervenor: Mountainside Gas Producers Coalition
The Mountainside Gas Producers Coalition is an unincorporated association of fourteen (14) independent natural gas producers operating in the Marcellus and Utica shale formations in the states of West Virginia, Ohio, and Pennsylvania. MGPC's members include producers of various sizes whose production enters interstate commerce through, among other systems, the ATPC pipeline system and the Ridgeline Pipeline System. Calvin Dreyer serves as Executive Director of MGPC. MGPC's address is 1100 Main Street, Suite 210, Morgantown, West Virginia 26505.
MGPC filed its motion to intervene on July 28, 2022. MGPC generally supports the proposed interconnection between Ridgeline and ATPC but has contested certain aspects of Ridgeline's proposed initial tariff rate, particularly the proposed return on equity and rate design. MGPC has retained Dr. Eleanor Vasquez as its rate expert for this proceeding.
Counsel of Record:
Whitmore & Sable LLP 1200 New Hampshire Avenue NW, Suite 600 Washington, DC 20036 Telephone: (202) 555-4800 Facsimile: (202) 555-4801
Rebekah Montague, Partner
Email: rmontague@whitmoresable.com
4. Intervenor: Clearwater Municipal Gas Authority
The Clearwater Municipal Gas Authority is a municipal authority organized under the Pennsylvania Municipality Authorities Act (53 Pa.C.S. §§ 5601–5623), with its principal office at 455 Market Street, Clearwater, Pennsylvania 15330. CMGA provides natural gas distribution service to residential, commercial, and industrial customers within the Borough of Clearwater and surrounding communities in Greene County, Pennsylvania. Dennis Ott serves as General Manager of CMGA.
CMGA filed its motion to intervene on August 1, 2022. CMGA's primary concern in this proceeding is the potential impact of Ridgeline's proposed rates and the interconnection cost allocation on rates charged by ATPC to municipal end-users, including CMGA and its customers. CMGA has generally aligned its positions with those of ATPC on the issues of return on equity and interconnection cost allocation.
Counsel of Record:
Fordham Municipal Law Group PC 312 Adams Avenue, Suite 100 Scranton, Pennsylvania 18503 Telephone: (570) 555-6700 Facsimile: (570) 555-6701
Stephen Greer, Principal
Email: sgreer@fordhamlaw.com
5. FERC Trial Staff
The Commission's Trial Staff participates in this proceeding pursuant to 18 C.F.R. § 385.102(d). Trial Staff represents the public interest and is not bound by the positions of any party, including the Office of Energy Market Regulation or other components of the Commission's Staff that may have been involved in the processing of Ridgeline's application prior to the issuance of the hearing order.
FERC Trial Staff:
Jonathan Briggs, Lead Trial Attorney Office of the General Counsel Federal Energy Regulatory Commission 888 First Street NE Washington, DC 20426 Telephone: (202) 502-8000
Email: jonathan.briggs@ferc.gov
Dr. Miriam Okafor, Lead Economic Analyst Office of Energy Market Regulation Federal Energy Regulatory Commission 888 First Street NE Washington, DC 20426 Telephone: (202) 502-8100
Email: miriam.okafor@ferc.gov
6. Presiding Administrative Law Judge
The Honorable Clara Whitfield was appointed as the Presiding Administrative Law Judge for this proceeding on November 14, 2022, and held a prehearing conference on that date.
7. Settlement Judge
The Honorable Howard Margolis was appointed as Settlement Judge for this proceeding by Commission order dated September 22, 2022, pursuant to 18 C.F.R. § 385.603.
IV. Contested Issues for Track II Hearing
The following is Ridgeline's identification of the contested issues that it anticipates will be the subject of the Track II evidentiary hearing in this proceeding. For each issue, Ridgeline has identified its own position and, to the extent known based on the pleadings filed to date, the positions of the other parties. Ridgeline reserves the right to supplement, modify, or withdraw any of the positions stated herein as the proceeding develops, and further reserves the right to raise additional issues as may be appropriate.
Issue 1: Return on Equity ("ROE")
The first contested issue is the appropriate return on equity ("ROE") component of Ridgeline's cost of service. The ROE is a critical element of Ridgeline's overall cost of capital and directly impacts the total cost of service and the resulting recourse rate.
Ridgeline's Position. Ridgeline proposes an ROE of 14.00%, as set forth in its original filing of May 12, 2022. Ridgeline's proposed ROE is based on a discounted cash flow ("DCF") proxy group analysis prepared by Dr. Raymond Braswell of Braswell Energy Consulting Group LLC, a former economist with the Federal Energy Regulatory Commission. Dr. Braswell's analysis, which will be presented in detail in Ridgeline's direct testimony to be filed on December 5, 2022, utilizes a proxy group of publicly traded natural gas pipeline master limited partnerships ("MLPs") and midstream companies to derive a range of reasonably comparable equity returns.
Ridgeline contends that the proposed 14.00% ROE is commensurate with the risks inherent in a newly constructed midstream pipeline that has been in service for only approximately one year as of the test-year end date and that currently operates at a utilization rate of only 56.67% of its 1.2 Bcf/d design capacity. The proposed ROE reflects the substantial capital commitment of $587.2 million in original construction cost, the significant volume risk associated with the early-stage nature of the System, and the competitive environment in the Appalachian Basin, where multiple pipeline systems compete for available gas supply from Marcellus and Utica shale producers. Ridgeline further contends that a 14.00% ROE is necessary to attract the equity investment required to support continued development of the Ridgeline Pipeline System and to provide a reasonable return to Ridgeline's sole equity investor, DEH.
ATPC's Position. ATPC contends in its August 15, 2022 protest that Ridgeline's proposed 14.00% ROE is excessive and unsupported by the record. ATPC's answering testimony, which is anticipated to be filed on January 9, 2023, is expected to advocate for an ROE of 10.75%. ATPC's position is based on the argument that the DCF proxy group selected by Ridgeline is not reasonably comparable to Ridgeline, that recent Commission precedent supports lower returns for natural gas pipelines operating in the Appalachian region, and that Ridgeline has overstated the risks associated with its pipeline operations. ATPC is expected to present testimony from its own financial expert in support of its proposed 10.75% ROE.
MGPC's Position. MGPC generally supports the proposed interconnection between the Ridgeline Pipeline System and ATPC's system, as it would provide MGPC's member producers with additional transportation capacity and market access. However, MGPC opposes the proposed 14.00% ROE as excessive. Through its retained rate expert, Dr. Eleanor Vasquez, MGPC is expected to advocate for an ROE no higher than 11.25%, based on Dr. Vasquez's independent analysis of the DCF proxy group and alternative methodologies. MGPC contends that an excessive ROE will result in rates that are unjust and unreasonable and that will disadvantage producers who rely on the Ridgeline Pipeline System for transportation of their gas production.
CMGA's Position. CMGA supports ATPC's position on ROE. In its intervention filing, CMGA expressed concern about the pass-through effect of an excessive ROE on rates charged to municipal end-users, including CMGA and its customers. CMGA notes that any increase in transportation rates on the Ridgeline Pipeline System or on ATPC's system as a result of the interconnection could ultimately be passed through to residential, commercial, and industrial consumers served by CMGA.
Sub-Issues. The ROE issue encompasses the following specific sub-issues, which Ridgeline anticipates will be addressed in the testimony and exhibits of the parties:
(a) Appropriateness and Composition of the DCF Proxy Group. Whether the proxy group of publicly traded natural gas pipeline MLPs and midstream companies selected by Dr. Braswell in Ridgeline's filing is appropriate and reasonably comparable to Ridgeline, including the criteria for inclusion and exclusion of specific companies from the proxy group.
(b) Post-2021 Market Conditions. Whether the proxy group analysis adequately reflects post-2021 market conditions, including the impact of rising interest rates, inflationary pressures, supply chain disruptions, and changes in natural gas commodity prices on equity returns for midstream pipeline companies.
(c) Risk Adders and Adjustments. Whether risk adders or other upward adjustments to the base DCF result are appropriate for a newly constructed pipeline with limited operating history and below-capacity utilization, and if so, the magnitude of any such adders.
(d) Capital Asset Pricing Model as a Check. Whether the capital asset pricing model ("CAPM") should be used as a check on the DCF results, and if so, the appropriate inputs and assumptions for the CAPM analysis, including the risk-free rate, market risk premium, and beta.
Issue 2: Capital Structure
The second contested issue is the appropriate capital structure to be used in determining Ridgeline's weighted average cost of capital ("WACC") for purposes of calculating the return on rate base component of Ridgeline's cost of service.
Ridgeline's Position. Ridgeline proposes a capital structure of 55% equity and 45% debt for purposes of its cost of service calculation. Ridgeline contends that this capital structure reflects the actual capitalization of the Ridgeline Pipeline System, as adjusted for affiliate transactions between Ridgeline and DEH that occurred subsequent to the initial financing of the System. Ridgeline further proposes a weighted average cost of debt of 5.25%, calculated across the $400 million senior secured term loan (bearing interest at the Secured Overnight Financing Rate ("SOFR") plus 325 basis points) and the $150 million in 7.875% fixed-rate Second Lien Senior Secured Notes due 2030.
Contested Sub-Issues. The capital structure issue encompasses the following specific sub-issues:
(a) Actual vs. Hypothetical Capital Structure. Whether the capital structure filed by Ridgeline represents its actual capital structure or a hypothetical capital structure, and which approach is appropriate under applicable Commission precedent. Ridgeline maintains that the filed 55/45 equity-to-debt ratio represents its actual capital structure after giving effect to post-closing affiliate transactions. Intervenors are expected to contest this characterization.
(b) Reasonableness of the 55/45 Split. Whether the proposed 55% equity / 45% debt capital structure is reasonable given the actual financing of the Ridgeline Pipeline System at inception, which consisted of approximately $550 million in total debt ($400 million term loan plus $150 million second lien notes) and only $37.2 million in equity contributed by DEH. Intervenors are expected to argue that the disparity between the initial capitalization and the filed capital structure raises questions about whether the filed capital structure has been artificially constructed through affiliate transactions to inflate the equity component and, thereby, the overall cost of service.
(c) Impact of DEH's Cayman Islands Domicile. Whether the Cayman Islands domicile of DEH, Ridgeline's sole equity owner, has any bearing on the determination of the appropriate equity component of the capital structure, including whether DEH's status as a foreign holding company warrants any adjustment to the equity ratio or any additional scrutiny of the equity contribution.
(d) Appropriate Cost of Debt. Whether Ridgeline's proposed weighted average cost of debt of 5.25% is reasonable, given the terms of the senior secured term loan (SOFR plus 325 basis points, with SOFR being a variable rate) and the second lien notes (7.875% fixed). Specific sub-issues include the selection of the appropriate SOFR rate for purposes of the cost of debt calculation, the treatment of variable-rate debt in a fixed-rate cost of service, and whether any risk premium embedded in the second lien notes reflects arm's-length market terms or affiliate-influenced pricing.
Issue 3: Rate Base
The third contested issue is the appropriate level of Ridgeline's rate base for purposes of calculating the return on rate base component of Ridgeline's cost of service.
Ridgeline's Position. Ridgeline's total rate base, as set forth in its May 12, 2022 filing, is $612.40 million. This total rate base is composed of the following components:
(i) Net Plant in Service: $563.71 million, consisting of original construction cost of $587.2 million less accumulated depreciation of $23.49 million as of the end of the test year (March 31, 2022).
(ii) Working Capital Allowance: $18.64 million, calculated using the Commission's one-eighth formula (one-eighth of the sum of operations and maintenance ("O&M") expense and administrative and general ("A&G") expense).
(iii) Accumulated Deferred Income Taxes ("ADIT"): Negative $12.45 million, which reduces rate base in accordance with the Commission's normalization requirements.
(iv) Other Rate Base Items: $42.50 million, consisting of gas stored for system operations, prepayments, and materials and supplies inventory.
Ridgeline contends that each of these rate base components is reasonable, properly calculated, and consistent with the Commission's regulations and established precedent for the determination of rate base for initial tariff filings by new interstate natural gas pipelines.
Contested Sub-Issues. The rate base issue encompasses the following specific sub-issues:
(a) Prudence of Original Construction Cost. Whether the original construction cost of $587.2 million for the 187-mile, 24-inch-diameter Ridgeline Pipeline System was prudently incurred. Ridgeline bears the burden of demonstrating the prudence of its construction expenditures, and Ridgeline intends to present testimony establishing that all construction costs were incurred through competitive bidding processes, arm's-length contracts, and sound engineering and project management practices. Intervenors may challenge the prudence of specific cost categories or individual expenditures.
(b) Depreciation Rate. Whether the proposed annual straight-line depreciation rate of 2.5% (implying a 40-year depreciable life) is appropriate for the Ridgeline Pipeline System. Ridgeline contends that a 2.5% depreciation rate is consistent with the useful life of its pipeline facilities and with rates approved by the Commission for comparable natural gas pipeline systems. Intervenors may argue for a higher depreciation rate (shorter useful life) or a lower depreciation rate (longer useful life), depending on their analytical perspectives.
(c) Calculation of Accumulated Depreciation. Whether the accumulated depreciation figure of $23.49 million as of the test-year end date of March 31, 2022, is correctly calculated. The Ridgeline Pipeline System was placed in service on October 1, 2021, and the test year ended on March 31, 2022, a period of six months. At the proposed 2.5% annual depreciation rate applied to the original cost of $587.2 million, six months of depreciation would be $7.34 million ($587.2 million × 2.5% × 0.5). However, Ridgeline's filed accumulated depreciation figure of $23.49 million exceeds this calculation by approximately $16.15 million. Ridgeline states that this difference reflects prior-period adjustments related to pre-in-service date depreciation on facilities that were placed in service on a component basis prior to the October 1, 2021 commercial in-service date of the overall System. The basis for and appropriateness of these prior-period adjustments is contested.
(d) Working Capital Allowance. Whether the working capital allowance of $18.64 million is reasonable. This amount is calculated as one-eighth of the sum of O&M expense ($12.44 million) and A&G expense ($4.82 million), consistent with the Commission's standard formula for working capital in the natural gas pipeline context. To the extent that the underlying O&M and A&G expense levels are contested (as discussed in Issue 4 below), the working capital allowance will necessarily be affected.
(e) Other Rate Base Items. Whether the composition and aggregate amount of other rate base items ($42.50 million) are reasonable and properly included in rate base. This category includes gas stored for system operations (line pack and storage gas), prepaid expenses, and materials and supplies inventory. Intervenors may challenge the quantities, valuations, or rate base treatment of specific items within this category.
(f) ADIT Calculation. Whether the accumulated deferred income taxes ("ADIT") balance of negative $12.45 million has been correctly calculated and properly reflected as a reduction to rate base. This sub-issue is interrelated with Issue 10 (Income Tax Allowance), as the ADIT calculation depends on the methodology used to determine the income tax allowance and the applicable tax rates.
Issue 4: Cost of Service
The fourth contested issue is the appropriate total cost of service for the Ridgeline Pipeline System, which, when divided by the billing determinants, produces the recourse rate.
Ridgeline's Position. Ridgeline's total test-year cost of service, as filed on May 12, 2022, is $97.36 million. This total cost of service is composed of the following elements:
(i) Return on Rate Base: $61.62 million, calculated by applying the proposed weighted average cost of capital ("WACC") of 10.0625% to the total rate base of $612.40 million. The WACC reflects the proposed 55/45 equity-to-debt capital structure, the proposed 14.00% ROE, and the proposed 5.25% weighted average cost of debt.
(ii) Depreciation Expense: $14.68 million, representing the annual straight-line depreciation of the Ridgeline Pipeline System at the proposed 2.5% rate applied to the original construction cost of $587.2 million.
(iii) Operations and Maintenance ("O&M") Expense: $12.44 million, as reported in Ridgeline's filed FERC Form 2 data for the test year ended March 31, 2022. O&M expense includes all costs of operating and maintaining the 187-mile pipeline system and three compressor stations, including fuel, labor, materials, third-party services, and regulatory compliance costs.
(iv) Administrative and General ("A&G") Expense: $4.82 million, as reported in Ridgeline's filed FERC Form 2 data for the test year ended March 31, 2022. A&G expense includes management salaries, office expenses, legal and accounting fees, insurance premiums, and other general corporate overhead costs allocable to the Ridgeline Pipeline System.
(v) Taxes Other Than Income: $3.80 million, consisting of property taxes assessed by state and local taxing authorities in West Virginia and Pennsylvania on Ridgeline's pipeline, compressor station, and related facilities, as well as applicable franchise taxes.
(vi) Income Tax Allowance: $16.10 million, calculated by grossing up Ridgeline's pre-tax income at an effective combined federal and state income tax rate of approximately 26.13%, reflecting the 21% federal corporate income tax rate and the 6.5% West Virginia state corporate income tax rate. The appropriateness of the income tax allowance is also addressed as a separate contested issue (Issue 10 below).
(vii) Revenue Credits: Negative $16.10 million, representing offsets to the cost of service from miscellaneous revenue sources, including interruptible transportation revenues and other non-jurisdictional revenue credits. The revenue credits reduce the total cost of service that must be recovered through the recourse rate charged to firm transportation shippers.
Contested Sub-Issues. The cost of service issue encompasses the following specific sub-issues:
(a) Level of O&M Expense. Whether the filed O&M expense of $12.44 million is reasonable and representative of the cost levels that Ridgeline will incur on a going-forward basis. Intervenors may challenge specific O&M cost categories as excessive, imprudent, or non-recurring, or may argue that certain costs have been understated.
(b) Level of A&G Expense. Whether the filed A&G expense of $4.82 million is reasonable, including whether the allocation of corporate overhead costs from DEH or other affiliates to Ridgeline is appropriate. Intervenors may challenge the methodology used to allocate shared services costs, the reasonableness of management compensation, or the inclusion of specific expense categories.
(c) Income Tax Allowance Methodology. Whether the income tax allowance methodology employed by Ridgeline is appropriate, given Ridgeline's status as a Delaware limited liability company and the tax classification of Ridgeline for federal income tax purposes. Specific sub-issues include whether a pass-through entity is entitled to an income tax allowance in its cost of service, whether the Commission's policy statement on income tax allowances for partnerships and LLCs (as developed through ExxonMobil Oil Corp. v. FERC, the Sterling Reach Holdings line of cases, and subsequent policy orders) applies, and the impact of DEH's status as a Cayman Islands company on the tax allowance calculation. This sub-issue overlaps substantially with Issue 10 below.
(d) Revenue Credits. Whether the amount and composition of the revenue credits (negative $16.10 million) are appropriate. Specific sub-issues include the level of imputed interruptible transportation revenue, the treatment of other miscellaneous revenues, and whether additional revenue credit categories should be included.
(e) Property and Franchise Tax Amounts. Whether the taxes other than income ($3.80 million) are accurate and properly reflects the actual property and franchise tax obligations of Ridgeline in West Virginia and Pennsylvania.
Issue 5: Rate Design and Billing Determinants
The fifth contested issue is the appropriate rate design for Ridgeline's initial recourse rate, including the billing determinants used to translate the total cost of service into a per-unit rate and the allocation of costs between the reservation charge and usage charge components.
Ridgeline's Position. Ridgeline's proposed recourse rate of $0.2265/Dth is derived by dividing the total cost of service of $97.36 million by the annual billing determinants of 438,000,000 Dth per year. The annual billing determinants are calculated using 100% load factor applied to the System's full design capacity of 1,200,000 Dth/d, multiplied by 365 days per year (1,200,000 Dth/d × 365 days × 100% load factor = 438,000,000 Dth/yr). The resulting rate of $0.2265/Dth is split between a reservation charge of $0.2223/Dth and a usage charge of $0.0042/Dth, reflecting Ridgeline's application of the fixed-variable rate design methodology under which the reservation charge recovers all fixed costs and the usage charge recovers only variable costs.
Ridgeline contends that the use of 100% load factor billing determinants is appropriate and consistent with Commission policy for initial tariff filings by new pipelines. Ridgeline further contends that the fixed-variable rate design accurately reflects the cost structure of the Ridgeline Pipeline System, in which the vast majority of costs are fixed capital costs and the variable cost component is limited to fuel and other throughput-dependent expenses.
MGPC's Position. MGPC advocates for a cost-of-service rate no higher than $0.1740/Dth, reflecting its proposed reductions to the ROE, cost of service, and other rate components. In addition, MGPC contests the 100% load factor assumption used to derive the billing determinants, arguing that a lower load factor would better reflect the expected utilization of the System and would result in a more equitable allocation of costs among shippers.
ATPC's/Intervenors' Position. All intervenors — ATPC, MGPC, and CMGA — advocate for a load factor assumption of 85% or higher (but less than 100%) for purposes of calculating the billing determinants. The intervenors contend that a 100% load factor assumption is unrealistic given the System's current throughput of approximately 680 MMcf/d (56.67% utilization) and the inherent uncertainty regarding future shipper commitments and throughput levels. If cost of service remains constant, a lower load factor would increase the per-unit recourse rate. However, the intervenors pair their load factor proposals with proposed reductions to the cost of service that would, they contend, result in an overall lower rate. Alternatively, intervenors contend that if costs are reduced sufficiently, the combination of a lower cost of service and a lower load factor could still produce a just and reasonable rate that is lower than Ridgeline's proposed rate.
Contested Sub-Issues. The rate design and billing determinants issue encompasses the following specific sub-issues:
(a) 100% Load Factor Justification. Whether a 100% load factor is justified for purposes of calculating Ridgeline's billing determinants, given the System's current throughput of only approximately 680 MMcf/d (representing 56.67% utilization of the 1.2 Bcf/d design capacity). Ridgeline contends that Commission policy supports the use of 100% load factor for new pipeline initial tariff filings, while intervenors contend that the actual utilization level should be reflected in the rate design.
(b) Appropriate Load Factor Percentage. If a load factor of less than 100% is determined to be appropriate, what percentage should be used. Intervenors have indicated preliminary support for load factors in the range of 85% to 95%, but the specific load factor advocated by each party is expected to be developed through testimony.
(c) Allocation of Costs Between Reservation and Usage Charges. Whether Ridgeline's proposed allocation of costs between the reservation charge ($0.2223/Dth) and the usage charge ($0.0042/Dth) under the fixed-variable methodology is appropriate. This sub-issue includes whether the classification of specific cost categories as fixed or variable is correct, and whether the resulting reservation/usage split properly reflects the cost structure of the Ridgeline Pipeline System.
(d) Interruptible Transportation Rate. The derivation of the interruptible transportation ("IT") rate, including the methodology for calculating the IT rate from the firm transportation rate and the appropriate relationship between the firm and interruptible rates. Under Commission policy, the maximum IT rate is generally set equal to the firm recourse rate on a per-unit basis; the specific application of this policy to Ridgeline's proposed rate is at issue.
(e) Reservation/Usage Rate Split. Whether the specific dollar amounts of the reservation charge ($0.2223/Dth) and usage charge ($0.0042/Dth) properly reflect the cost allocation determined under the fixed-variable methodology, and whether any adjustments to the split are warranted.
(f) Seasonal Differentiation. Whether seasonal differentiation in the recourse rate is warranted, given the patterns of natural gas production and demand in the Appalachian Basin and the potential for seasonal variations in throughput on the Ridgeline Pipeline System. Ridgeline's initial filing does not propose seasonal rate differentiation, but intervenors may raise this issue in their testimony.
Issue 6: Interconnection Facilities — Cost Allocation
The sixth contested issue relates to the allocation of costs for the interconnection facilities at the Wetzel County Interconnect, where the Ridgeline Pipeline System will connect with ATPC's existing pipeline network. This issue is central to the interconnection authorization sought by Ridgeline in Docket No. RP22-847-001.
Ridgeline's Position. The total estimated cost of the interconnection facilities at the Wetzel County Interconnect is $22.3 million. This cost includes the construction of a new meter station, pig launcher/receiver, valve assemblies, electronic flow measurement equipment, SCADA facilities, and all necessary modifications to ATPC's existing 30-inch mainline at ATPC Milepost 412.6 to accommodate the physical interconnection with the Ridgeline Pipeline System at Ridgeline Milepost 0.0.
Ridgeline proposes a cost-causation-based allocation of the $22.3 million in interconnection facility costs, allocating 34.1% ($7.6 million) to Ridgeline and 65.9% ($14.7 million) to ATPC. Ridgeline contends that this cost allocation reflects the relative benefits that each system will receive from the interconnection, and is further supported by a cost-causation analysis demonstrating that the greater share of the interconnection costs is attributable to the modifications required on ATPC's side of the interconnect. Specifically, Ridgeline notes that ATPC's existing 30-inch mainline at Milepost 412.6 requires more extensive modifications — including a hot tap, pressure regulation, odorization facilities, and pipeline reinforcement — than Ridgeline's new facilities at Milepost 0.0 of the Ridgeline Pipeline System, where the interconnection tie-in point was designed and constructed as part of the original System build-out.
Ridgeline further contends that the proposed 34.1/65.9 allocation is consistent with the Commission's cost-causation principles as articulated in Order No. 2004 and its progeny, which require that the costs of interconnection facilities be allocated to the party or parties that cause the costs to be incurred and that benefit from the interconnection.
ATPC's Position. ATPC protests the proposed cost allocation in its August 15, 2022 filing. ATPC argues that Ridgeline's proposed allocation improperly shifts $14.7 million in interconnection facilities costs to ATPC and, ultimately, to ATPC's existing shippers. ATPC contends that the interconnection provides mutual benefits to both Ridgeline and ATPC, and that the most equitable allocation is a 50/50 split, under which each party would bear $11.15 million of the total $22.3 million cost. ATPC further argues that Ridgeline's cost-causation analysis is flawed because it attributes costs to ATPC based on the physical location of the required modifications, rather than on the identity of the party that initiated and will primarily benefit from the interconnection (which ATPC contends is Ridgeline).
CMGA's Position. CMGA supports ATPC's position on interconnection cost allocation. CMGA's primary concern is that any allocation of interconnection costs to ATPC could result in increased rates on ATPC's system, which would be passed through to municipal end-users, including CMGA and its ratepayers in the Borough of Clearwater and surrounding communities.
Contested Sub-Issues. The interconnection cost allocation issue encompasses the following specific sub-issues:
(a) Applicable FERC Precedent. The applicable Commission precedent on interconnection cost allocation, including Order No. 2004 (Standardization of Generator Interconnection Agreements and Procedures, 104 FERC ¶ 61,103 (2003)) and its progeny, as applied to natural gas pipeline interconnections. While Order No. 2004 was primarily directed at electric generation interconnections, its cost-causation principles have been applied by analogy in the natural gas context.
(b) Cost-Causation Methodology. Whether a cost-causation-based methodology or a benefits-based methodology is the appropriate framework for allocating interconnection costs between Ridgeline and ATPC, and the proper application of the selected methodology to the facts of this case. This includes the question of who is the "cost causer" of the interconnection — the party that initiated the interconnection request (Ridgeline) or the party whose existing facilities require the greater share of physical modifications (ATPC).
(c) 50/50 Split vs. Benefits-Based Split. Whether a 50/50 split of interconnection costs ($11.15 million each) or a benefits-based split (as proposed by Ridgeline at 34.1/65.9) is more appropriate and consistent with the Commission's cost-causation principles.
(d) Identification and Quantification of Benefits. The identification and quantification of the benefits flowing to each system from the interconnection, including increased market access for Ridgeline shippers, increased supply source diversity for ATPC shippers, enhanced system reliability for both parties, and potential revenue enhancement for each system.
(e) Rate Base vs. Separate Treatment. Whether the interconnection costs allocated to Ridgeline should be rolled into Ridgeline's overall rate base for purposes of the initial tariff rate calculation, or whether they should be treated separately and recovered through a separate charge or mechanism.
Issue 7: Interconnection Facilities — Design and Metering
The seventh contested issue relates to the design, specifications, and operational parameters of the proposed interconnection facilities at the Wetzel County Interconnect. While Issue 6 addresses the allocation of costs for these facilities, Issue 7 addresses the physical design and metering requirements.
Ridgeline's Position. The proposed interconnection at the Wetzel County Interconnect includes a new meter station and pig launcher/receiver at Milepost 0.0 of the Ridgeline Pipeline System, tying into ATPC's existing 30-inch mainline at ATPC Milepost 412.6. The interconnect is designed for an initial capacity of 800 MMcf/d with bidirectional flow capability, expandable to 1.2 Bcf/d to match the full design capacity of the Ridgeline Pipeline System. The bidirectional flow capability will allow gas to flow from ATPC's system into the Ridgeline system (the primary flow direction) as well as from the Ridgeline system into ATPC's system (reverse flow) when operational conditions warrant.
Ridgeline's proposed metering equipment for the interconnection includes ultrasonic flow meters configured in three runs of 12-inch-diameter meter tubes, providing redundancy and measurement accuracy at the anticipated flow rates. Gas quality measurement will be provided by gas chromatographs meeting FERC and industry standards for natural gas quality analysis. The interconnection facilities will be integrated with Ridgeline's supervisory control and data acquisition ("SCADA") system, providing real-time monitoring of flow rates, pressures, temperatures, gas quality, and operational status of all interconnection equipment.
Ridgeline contends that the proposed interconnection design meets all applicable engineering standards, provides adequate measurement accuracy and reliability, and is consistent with industry practice for interconnections of this size and capacity.
ATPC's Position. ATPC argues in its August 15, 2022 protest that Ridgeline's proposed receipt-point metering station design is inadequate in several respects. ATPC's specific concerns include: (i) the number of meter runs (ATPC contends that three 12-inch runs are insufficient for the 800 MMcf/d to 1.2 Bcf/d flow range and that additional runs are needed for accuracy and redundancy); (ii) the gas quality measurement provisions (ATPC contends that the proposed gas chromatograph specifications do not adequately address all gas quality parameters relevant to ATPC's system operations, including moisture content, hydrogen sulfide, and heavier hydrocarbons); and (iii) the operational reliability of the proposed configuration (ATPC contends that the design does not provide adequate backup and failover capability in the event of equipment failure).
Contested Sub-Issues. The interconnection design and metering issue encompasses the following specific sub-issues:
(a) Meter Run Configuration. Whether the proposed 3-run, 12-inch ultrasonic flow meter configuration is adequate for the interconnection's initial capacity of 800 MMcf/d and planned expansion capacity of 1.2 Bcf/d, or whether additional meter runs or larger-diameter meter tubes are required. This sub-issue includes the accuracy and turndown ratio of the proposed meter configuration across the range of anticipated flow rates.
(b) Gas Chromatograph Specifications. The specifications and placement of gas chromatographs at the interconnection, including the range of gas quality parameters to be measured, the measurement frequency, the accuracy tolerances, and the compliance with applicable API and GPA Midstream standards for natural gas quality analysis.
(c) SCADA Integration and Data Sharing. The protocols for SCADA integration between Ridgeline's and ATPC's control systems, including the types and frequency of data to be shared, cybersecurity requirements, data format standards, and the allocation of costs for SCADA integration.
(d) Pig Launcher/Receiver Specifications. The design and specifications of the pig launcher/receiver facilities at the interconnection, including size, pressure rating, and compatibility with both Ridgeline's and ATPC's pigging programs and pipeline integrity management requirements.
(e) Expandability Provisions. The specific provisions for expanding the interconnection capacity from 800 MMcf/d to 1.2 Bcf/d, including the physical modifications required, the estimated cost of expansion, the cost allocation for expansion costs, and the timeline for expansion.
(f) Construction Timeline and In-Service Date. The construction timeline for the interconnection facilities, including the originally targeted in-service date of the fourth quarter of 2023. This target date has been delayed pending resolution of this proceeding. The parties disagree on the appropriate in-service date and the factors that should govern the construction schedule.
(g) Operational Responsibility and Maintenance Allocation. The allocation of operational responsibility and maintenance obligations between Ridgeline and ATPC for the interconnection facilities, including which party has operational control of the meter station, which party is responsible for routine and corrective maintenance, and how maintenance costs are allocated.
Issue 8: Interconnection Agreement — Filing as a Rate Schedule
The eighth contested issue is whether the Interconnection Agreement between Ridgeline and ATPC must be filed with the Commission as a rate schedule under the Commission's regulations at 18 C.F.R. Part 154, and the appropriate terms and conditions of such an agreement.
Ridgeline and ATPC have been engaged in negotiations, conducted through their respective counsel (Calderwood & Harkness LLP for Ridgeline and Kellner, Royce & Dillard LLP for ATPC), regarding the terms of a draft Interconnection Agreement that would govern the construction, ownership, operation, and maintenance of the interconnection facilities at the Wetzel County Interconnect. The parties have not yet reached agreement on all terms and conditions of the Interconnection Agreement.
The specific contested sub-issues include: (a) whether the Commission's regulations require the Interconnection Agreement to be filed as a rate schedule under 18 C.F.R. Part 154; (b) the appropriate capacity provisions of the agreement, including the initial capacity of 800 MMcf/d and the expansion provisions to 1.2 Bcf/d; (c) the cost allocation provisions, which are subject to the resolution of Issue 6 above; (d) the metering provisions, which are subject to the resolution of Issue 7 above; (e) the operational procedures governing the day-to-day operation of the interconnection, including nomination and scheduling procedures, operational flow orders, and imbalance management; (f) the maintenance responsibilities of each party, including the allocation of routine and corrective maintenance costs; and (g) the dispute resolution provisions, including whether disputes arising under the Interconnection Agreement should be resolved through FERC proceedings, arbitration, or other mechanisms.
Ridgeline contends that the Interconnection Agreement should be filed with the Commission as a rate schedule, consistent with the Commission's regulations and precedent requiring that agreements between jurisdictional pipelines governing the terms and conditions of physical interconnections be filed and made available for public inspection. Ridgeline anticipates that the terms of the Interconnection Agreement will be finalized during the course of this proceeding, potentially as part of a settlement, and that the agreement will be filed with the Commission for approval as part of or in conjunction with the resolution of this docket.
Issue 9: Tariff Terms and Conditions
The ninth contested issue relates to the general terms and conditions of Ridgeline's proposed FERC Gas Tariff, Original Volume No. 1. Multiple provisions of the proposed tariff have been identified by one or more parties as requiring review and potential modification. The following specific tariff provisions are at issue:
(a) Fuel-Use and Lost-and-Unaccounted-For Gas ("FL&U") Tracker Mechanism. Whether and how the tariff should include an FL&U tracker mechanism to account for fuel consumed by the System's three compressor stations and for lost-and-unaccounted-for gas. Ridgeline's proposed tariff includes a fuel-use percentage applied to scheduled quantities, but the specific tracker mechanism, including the method for periodic adjustments, true-up provisions, and reporting requirements, is contested.
(b) Capacity Release Provisions. Whether the tariff must include explicit shipper capacity release rights under the Commission's capacity release regulations at 18 C.F.R. § 284.8. Ridgeline's proposed tariff includes capacity release provisions, but the intervenors have raised questions about the adequacy and completeness of these provisions, including the posting requirements, bidding procedures, and prearranged deal provisions.
(c) NAESB Wholesale Gas Quadrant Standards Compliance. Whether the operational flow order ("OFO") provisions of Ridgeline's proposed tariff comply with the standards adopted by the North American Energy Standards Board ("NAESB") Wholesale Gas Quadrant ("WGQ") Version 3.2. Compliance with NAESB WGQ standards is required by the Commission's regulations, and the intervenors have identified specific OFO provisions that they contend are inconsistent with NAESB WGQ Version 3.2 requirements.
(d) Electronic Bulletin Board ("EBB") Posting Requirements. Whether the EBB provisions in Ridgeline's proposed tariff are adequate to comply with the Commission's requirements for electronic posting of available capacity, scheduled quantities, operational notices, and other information required to be posted under the Commission's open-access regulations and NAESB standards. Intervenors have questioned the timeliness, completeness, and accessibility of the proposed EBB postings.
(e) Shipper-Must-Have-Title Provisions. Whether the tariff adequately addresses shipper title requirements under Order No. 712 (Standards of Conduct for Transmission Providers, 125 FERC ¶ 61,064 (2008)). Specific sub-issues include the documentation requirements for demonstrating title to gas tendered for transportation, the timing of title verification, and the consequences of shipper failure to demonstrate title.
(f) Penalty Revenue Crediting Mechanism. The mechanism by which penalty revenues collected from shippers who violate operational flow orders or other tariff provisions are credited to non-offending shippers. Intervenors have raised questions about the frequency, method, and transparency of the crediting process proposed in Ridgeline's tariff.
(g) Creditworthiness Provisions. Whether the proposed creditworthiness provisions are adequate to protect the financial integrity of the System while not imposing unreasonable barriers to shipper access. Specific sub-issues include the collateral requirements for shippers that do not meet the creditworthiness standards, unsecured credit limits, credit rating thresholds (including the minimum investment-grade credit rating required for unsecured credit), and the procedures for reassessing shipper creditworthiness upon a material change in financial condition.
(h) Segmentation and Flexible Receipt/Delivery Point Provisions. Whether the tariff should include provisions allowing shippers to segment their firm transportation capacity rights and to utilize flexible receipt and delivery points. Ridgeline's proposed tariff does not currently include segmentation or flexible receipt/delivery point provisions. MGPC, in particular, has indicated that such provisions would enhance the value and utility of the transportation service for its member producers.
(i) Greenhouse Gas Emission Cost Recovery. Whether the tariff should include provisions for the recovery of costs associated with greenhouse gas ("GHG") emissions, including potential future carbon taxes, cap-and-trade program compliance costs, and methane emission reduction expenditures. This is an emerging issue in the natural gas pipeline industry, and the parties have differing views on whether and how GHG cost recovery provisions should be included in an initial tariff filing.
(j) Order No. 2222 Distributed Energy Resource Aggregation Implications. Whether and how the tariff should address distributed energy resource ("DER") aggregation for renewable energy interconnection, particularly in light of Commission Order No. 2222 (Participation of Distributed Energy Resource Aggregations in Markets Operated by Regional Transmission Organizations and Independent System Operators, 172 FERC ¶ 61,247 (2020)). This issue is of particular relevance given that DEH, Ridgeline's parent company, has a 250-megawatt ("MW") wind energy portfolio under development in the Appalachian region, and the potential exists for future interactions between Ridgeline's natural gas transportation operations and DEH's renewable energy assets. The intervenors have raised questions about potential affiliate transaction concerns and the need for tariff provisions addressing DER aggregation and renewable energy interconnection.
Issue 10: Income Tax Allowance — Partnership/Pass-Through Entity Treatment
The tenth contested issue is whether Ridgeline, as a Delaware limited liability company wholly owned by DEH (a Cayman Islands exempted limited company), is entitled to an income tax allowance in its cost of service, and if so, the appropriate methodology for calculating such allowance.
Ridgeline proposes an income tax allowance of $16.10 million, based on a grossed-up effective combined fe