PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
SETTLEMENT CONFERENCE PREPARATION OUTLINE
Fourth Settlement Conference — January 18, 2024 Before Settlement Judge Hon. Howard Margolis
FERC Docket Nos. RP22-847-000 (Rate Case) and RP22-847-001 (Interconnection) C&H Matter No. 1016-00005
Prepared by:
Calderwood & Harkness LLP 1601 K Street NW, Suite 900 Washington, DC 20006
Date: January 12, 2024
Distribution:
George Trujillo — Responsible Partner Patricia Dunmore — Billing Partner / DEH Chairperson Brett Callahan — Lead Associate David Stanton — Working Associate
This document is protected by the attorney-client privilege and the work product doctrine. It has been prepared by Calderwood & Harkness LLP in anticipation of litigation and for the purpose of providing legal advice to Desert Eagle Holdings LLC ("DEH") and its wholly owned subsidiary, Ridgeline Midstream Services LLC ("Ridgeline"), in connection with the above-captioned proceedings before the Federal Energy Regulatory Commission. This document is not to be disclosed, copied, or distributed to any person or entity outside of the distribution list above without the prior written authorization of George Trujillo, Responsible Partner. Any inadvertent disclosure does not constitute a waiver of privilege.
Right-click to update Table of Contents
I. EXECUTIVE SUMMARY AND CONFERENCE OBJECTIVES
A. Purpose of This Memorandum
This memorandum is a privileged preparation document for the fourth settlement conference in this proceeding, which is scheduled for January 18, 2024, at 10:00 a.m. Eastern Time, before FERC Settlement Judge the Honorable Howard Margolis, at the Federal Energy Regulatory Commission's offices located at 888 First Street NE, Washington, DC 20426. The conference will take place in Settlement Conference Room B on the fourth floor, as confirmed by the Office of Administrative Law Judges on January 5, 2024.
This memorandum serves several critical functions. It sets forth the current positions of all parties to the proceeding, identifies the gaps between those positions, and analyzes the relative strengths and weaknesses of each party's posture. It further delineates the negotiation parameters that have been authorized by the DEH Board of Directors, as represented by Patricia Dunmore in her capacity as Chairperson and 72% controlling shareholder of DEH. The memorandum provides detailed talking points for each contested issue, organized by subject matter, to guide George Trujillo's presentations during both the joint session and the caucus sessions. Finally, this memorandum presents a proposed settlement framework that the Ridgeline team may advance during the conference as a basis for structured global settlement negotiations.
All members of the Ridgeline team attending the conference should familiarize themselves with the entirety of this memorandum and should be prepared to provide real-time support on their respective areas of responsibility, as outlined in Section II below. Any questions regarding the authorized concession parameters described in Section IV should be directed to George Trujillo or Patricia Dunmore prior to the conference.
B. Prior Settlement Conferences
The parties to this proceeding have engaged in three prior settlement conferences, none of which has resulted in a settlement. A brief summary of each conference follows, which provides essential context for the strategy to be employed at the fourth conference.
First Settlement Conference — November 30, 2022. The initial settlement conference was held approximately two months after Ridgeline filed its application for a certificate of public convenience and necessity and proposed tariff under Section 7(c) of the Natural Gas Act. At this conference, the parties engaged in an introductory exchange of positions. Ridgeline, through George Trujillo, presented its original proposed recourse rate of $0.2265/Dth, which was based on a cost of service derived from a 14.00% return on equity and a 100% load factor assumption. The Appalachian Trunk Pipeline Company ("ATPC"), through William Pratt of Kellner, Royce & Dillard LLP, expressed vigorous opposition to both the proposed rate level and the proposed allocation of interconnection costs at the Wetzel County Interconnect. The Mountainside Gas Producers Coalition ("MGPC"), through Rebekah Montague of Whitmore & Sable LLP, echoed ATPC's objections regarding the rate level and further raised concerns about the tariff's capacity release and creditworthiness provisions. The Clearwater Municipal Gas Authority ("CMGA"), through Stephen Greer of Fordham Municipal Law Group PC, indicated general support for ATPC's position on rate level while emphasizing the importance of rate certainty for municipal distribution customers. Settlement Judge Margolis encouraged the parties to continue dialogue but acknowledged the significant gap between positions.
Second Settlement Conference — March 8, 2023. The second conference was held approximately six weeks after FERC's Office of Energy Market Regulation issued a Deficiency Letter dated January 19, 2023, identifying fourteen deficiency items in Ridgeline's tariff filing. The conference discussion was substantially shaped by the Deficiency Letter, which required Ridgeline to address a range of issues including the basis for its 100% load factor assumption (Item 4), the absence of capacity release provisions (Item 5), NAESB compliance shortfalls (Item 6), and the lack of a creditworthiness standard (Item 11). All parties acknowledged during the joint session that Ridgeline's rate design would need to be substantially revised in light of the deficiency items, and accordingly, there was limited substantive progress on the core rate and cost allocation disputes. The conference did, however, yield agreement among the parties that Ridgeline should engage a third-party consultant to assist with the tariff redesign — a step that Ridgeline subsequently took by retaining Braswell Energy Consulting Group LLC.
Third Settlement Conference — July 12, 2023. The third conference was held after Ridgeline had retained Dr. Raymond Braswell and his team at Braswell Energy Consulting Group LLC (engagement number BEC-2023-0041) and after Ridgeline had filed its partial response to the Deficiency Letter on March 15, 2023, addressing eight of the fourteen deficiency items. At this conference, George Trujillo conveyed Ridgeline's preliminary redesign direction, including a move from the 100% load factor to a 75% load factor and a reduction in the proposed ROE from 14.00% (though the specific revised ROE figure was not disclosed at that time). ATPC and MGPC reiterated their opposition to Ridgeline's rate design and indicated that their respective positions on ROE (10.75% for ATPC; 11.25% for MGPC) and load factor (85% or higher for both) had not changed. Despite Settlement Judge Margolis's efforts to facilitate compromise, no narrowing of issues was achieved at the third conference.
Overall Status. After three settlement conferences spanning approximately eight months of intermittent discussions, no settlement has been reached in either the rate case docket (RP22-847-000) or the interconnection docket (RP22-847-001). A significant gap remains between Ridgeline's revised position and the intervenors' combined position on the three core contested issues: ROE, load factor, and interconnection cost allocation. The fourth conference represents an opportunity to present Ridgeline's further-revised settlement parameters and to determine whether structured global settlement negotiations are feasible.
C. Current Posture of the Proceeding
The proceeding is currently dormant with respect to hearing procedures. Administrative Law Judge Whitfield issued an order on September 8, 2023, granting Ridgeline's second motion for extension of time to file its redesigned tariff. The current filing deadline established by that order is February 23, 2024. However, as discussed in Section VIII.A below, Ridgeline intends to request a further twelve-month extension of that deadline (i.e., to approximately February 21, 2025) in order to complete the comprehensive tariff redesign currently underway.
The tariff redesign effort is being conducted by Ridgeline's internal rates and regulatory team, led by Dr. Natasha Orlov (Director of Rates & Regulatory), in collaboration with Braswell Energy Consulting Group LLC, which was engaged on April 15, 2023, under engagement number BEC-2023-0041. Dr. Raymond Braswell is the lead consultant on the engagement and has been actively involved in the redesign since the third settlement conference. The tariff redesign is currently at the second-draft stage. A January 2024 redline of the proposed tariff has been prepared incorporating Dr. Braswell's recommendations, including the adoption of a modified fixed-variable rate methodology based on a 75% load factor and a revised ROE target of 12.50%. The January 2024 redline represents a substantial evolution from the original tariff filing and addresses, in whole or in part, all fourteen deficiency items identified in the Commission's January 19, 2023 Deficiency Letter.
The settlement track and the hearing track are running in parallel, as is customary in FERC rate proceedings. Settlement Judge Margolis retains jurisdiction over settlement discussions, while ALJ Whitfield retains jurisdiction over the merits hearing, which remains stayed pending the filing of the redesigned tariff. The fourth settlement conference is being held in this parallel posture, and the parties' participation in the settlement conference is without prejudice to their respective litigation positions, consistent with FERC Rule 602(e).
D. Objectives for This Conference
The Ridgeline team should pursue the following five objectives at the fourth settlement conference, listed in order of priority:
1. Present Ridgeline's revised settlement parameters. George Trujillo should use the joint session presentation to convey, in substantive but measured terms, that Ridgeline has made meaningful progress on its tariff redesign and is prepared to discuss settlement based on revised parameters reflecting that redesign work. The revised parameters — 12.50% ROE, 75% load factor, and the revised cost-of-service figure of $103.15 million — should be presented as a credible, good-faith basis for negotiation, not as a final offer.
2. Narrow the three key sticking points. The conference should be used to test whether progress is possible on the three principal contested issues: (a) the return on equity, (b) the allocation of interconnection costs at the Wetzel County Interconnect, and (c) the load factor assumption used in rate design. Even incremental progress on any one of these issues would represent a meaningful advance over the prior conferences.
3. Gauge intervenor willingness to engage in structured global settlement negotiations. A central objective is to determine whether ATPC, MGPC, and CMGA are willing to engage in a structured, multi-session negotiation process aimed at a comprehensive settlement encompassing both docket numbers. If the intervenors express willingness, Ridgeline should propose a schedule for continued discussions. If they do not, Ridgeline should be prepared to assess whether the settlement track remains productive.
4. Provide Settlement Judge Margolis with evidence of progress. It is important that Settlement Judge Margolis perceive that the settlement process is yielding results, even if incremental, to justify the continuation of the settlement track alongside the dormant hearing. If the Settlement Judge concludes that further settlement conferences are unlikely to be productive, there is a risk that he will recommend termination of the settlement process, which would be premature from Ridgeline's perspective given the ongoing tariff redesign.
5. Preserve Ridgeline's litigation position. Throughout the conference, the Ridgeline team must ensure that all settlement communications remain privileged and that no binding concessions are made. All offers should be explicitly conditioned on a global resolution of all issues in both docket numbers. Ridgeline must preserve its right to file the redesigned tariff at the full $0.3140/Dth rate and to litigate that rate before ALJ Whitfield if settlement efforts are ultimately unsuccessful.
II. ATTENDEES AND REPRESENTATION
A. Ridgeline / DEH Team
The following individuals will attend the fourth settlement conference on behalf of Ridgeline Midstream Services LLC and its parent entity, Desert Eagle Holdings LLC:
George Trujillo — Responsible Partner, Calderwood & Harkness LLP. Mr. Trujillo will serve as lead negotiator for the Ridgeline team. He will make the opening presentation during the joint session and will lead all substantive discussions with Settlement Judge Margolis during the caucus sessions. Mr. Trujillo has been lead counsel for Ridgeline since the inception of this proceeding and has appeared at all three prior settlement conferences.
Patricia Dunmore — Billing Partner, Calderwood & Harkness LLP; Chairperson and 72% controlling shareholder, Desert Eagle Holdings LLC. Ms. Dunmore serves in a dual capacity in this proceeding: as the billing partner for Calderwood & Harkness's representation of Ridgeline, and as the principal and controlling shareholder of DEH, Ridgeline's parent entity. A conflict waiver with respect to this dual role is on file with the firm's General Counsel and has been acknowledged by the client. Ms. Dunmore is the authorized settlement decision-maker for purposes of this conference, having executed the Board authorization described in Section IV.A below. Her presence at the conference ensures that the Ridgeline team has real-time authority to accept or reject settlement proposals within the authorized parameters without the need to adjourn for consultation.
Brett Callahan — Lead Associate, Calderwood & Harkness LLP. Mr. Callahan will provide technical support on interconnection issues, including the metering station design dispute, the cost allocation methodology, and the status of the Interconnection Agreement required by Deficiency Item 9. Mr. Callahan has primary responsibility for the RP22-847-001 interconnection docket.
David Stanton — Working Associate, Calderwood & Harkness LLP. Mr. Stanton will provide support on rate design and cost-of-service issues. He has been working closely with Dr. Raymond Braswell on the tariff redesign and is familiar with the details of the revised cost-of-service model and the rate sensitivity analysis.
James K. Winfield — Chief Executive Officer and President, Ridgeline Midstream Services LLC. Mr. Winfield is the senior client principal and will attend to provide client-side input during the caucus sessions. His knowledge of Ridgeline's operational and commercial circumstances — including throughput levels, shipper relationships, and expansion plans — may be relevant to settlement discussions.
Angela Moretti — Vice President, Finance & Treasurer, Ridgeline Midstream Services LLC. Ms. Moretti will provide real-time support on cost-of-service and financial data, including questions related to the capital structure, cost of debt, and credit facility covenants. Her familiarity with the Pinnacle National Bank credit facility and the second lien note indenture is essential given the financing constraints discussed in Section VII below.
Dr. Natasha Orlov — Director of Rates & Regulatory, Ridgeline Midstream Services LLC. Dr. Orlov will provide support on rate design and tariff provisions. She has been leading Ridgeline's internal tariff redesign effort and is the author of record for the revised tariff provisions addressing the deficiency items. Dr. Orlov will also be available to address technical questions regarding load factor, billing determinants, and the modified fixed-variable rate methodology.
B. ATPC Team (Anticipated)
Based on prior conference attendance and current docket filings, the following individuals are anticipated to attend on behalf of the Appalachian Trunk Pipeline Company:
William Pratt — Senior Partner, Kellner, Royce & Dillard LLP, One PPG Place, Suite 2800, Pittsburgh, PA 15222. Mr. Pratt is lead counsel for ATPC in both docket numbers and has attended all three prior settlement conferences. He is an experienced FERC practitioner who has been particularly aggressive on the interconnection cost allocation issue. Mr. Pratt's style in prior conferences has been measured but firm; he has consistently anchored ATPC's position at a 10.75% ROE and a 50/50 interconnection cost split, with limited visible flexibility.
Sandra K. Fenton — Vice President, Regulatory Affairs, Appalachian Trunk Pipeline Company, 2200 Penn Center West, Suite 300, Pittsburgh, PA 15276. Ms. Fenton is the senior regulatory executive for ATPC and has attended all three prior settlement conferences. She has typically deferred to Mr. Pratt on legal and rate design issues but has been vocal on operational and commercial matters, particularly regarding the metering station design at the Wetzel County Interconnect.
Marcus R. Alderman (possible) — President and Chief Executive Officer, Tidewater Infrastructure Partners LP / ATPC. Mr. Alderman is the senior decision-maker at Tidewater, ATPC's parent company. Tidewater Infrastructure Partners LP has an estimated enterprise value of approximately $6.1 billion and is a major midstream operator with extensive pipeline, gathering, and processing assets across the Appalachian Basin. Mr. Alderman did not attend the first or second settlement conferences but made a brief appearance at the third conference, which may signal ATPC's interest in pursuing a negotiated resolution. If Mr. Alderman attends the fourth conference, it would be significant and may indicate that ATPC has internal authorization to move from its stated positions.
C. MGPC Team (Anticipated)
The following individuals are anticipated to attend on behalf of the Mountainside Gas Producers Coalition:
Rebekah Montague — Partner, Whitmore & Sable LLP, 1200 New Hampshire Avenue NW, Suite 600, Washington, DC 20036. Ms. Montague is lead counsel for MGPC and has attended all three prior settlement conferences. She has been articulate in presenting the producers' perspective that an excessive recourse rate would chill throughput on the Ridgeline system and impede producers' access to downstream markets.
Calvin Dreyer — Executive Director, Mountainside Gas Producers Coalition, 1100 Main Street, Suite 210, Morgantown, WV 26505. Mr. Dreyer leads the MGPC coalition, which represents fourteen independent natural gas producers operating in the Marcellus and Utica shale formations in West Virginia and southwestern Pennsylvania. Mr. Dreyer has attended all three prior settlement conferences and has been vocal about the need for rate certainty for producers making drilling and completion investment decisions.
Dr. Eleanor Vasquez (possible) — Rate expert retained by MGPC. Dr. Vasquez has submitted testimony on behalf of MGPC supporting an 11.25% ROE and has criticized certain aspects of Ridgeline's cost-of-service methodology. If she attends the fourth conference, it may be for technical support during the caucus sessions. Her presence would also suggest that MGPC is preparing to engage in detailed rate design discussions.
D. CMGA Team (Anticipated)
The following individuals are anticipated to attend on behalf of the Clearwater Municipal Gas Authority:
Stephen Greer — Principal, Fordham Municipal Law Group PC, 312 Adams Avenue, Suite 100, Scranton, PA 18503. Mr. Greer is counsel for CMGA and has attended all three prior settlement conferences. CMGA's participation in this proceeding has been relatively passive; it has generally supported ATPC's positions on rate level and cost allocation without advancing independent arguments.
Dennis Ott — General Manager, Clearwater Municipal Gas Authority, 455 Market Street, Clearwater, PA 15330. Mr. Ott manages the day-to-day operations of CMGA, a small municipal distribution utility serving approximately 12,000 residential and commercial customers in Clearwater, Pennsylvania, and surrounding areas. His participation underscores CMGA's interest in minimizing transportation costs to protect ratepayers.
E. FERC
Settlement Judge: The Honorable Howard Margolis. Settlement Judge Margolis was appointed to facilitate settlement discussions in this proceeding by the Chief Administrative Law Judge on October 15, 2022. He has presided over all three prior settlement conferences and has demonstrated a patient, methodical approach to the negotiations. In the third conference, Settlement Judge Margolis expressed concern about the pace of progress and encouraged the parties to come to the fourth conference with "concrete proposals and real authority." The Ridgeline team should be responsive to this admonition.
FERC Trial Staff (possible observers). Trial Staff may attend the fourth conference as observers, consistent with their role under Commission rules. If present, the following individuals are expected to attend:
• Jonathan Briggs — Lead Trial Attorney, Office of the General Counsel. Mr. Briggs has been designated as lead trial attorney for Commission Staff in this proceeding.
• Dr. Miriam Okafor — Lead Economic Analyst, Office of Energy Market Regulation. Dr. Okafor has been assigned as the lead economic analyst and would be responsible for Staff's independent review of Ridgeline's cost of service and rate design if the matter proceeds to hearing.
Trial Staff's attendance at the settlement conference is informational; Staff does not typically take advocacy positions in settlement conferences but may offer technical observations or identify areas where the Commission would have concerns with a proposed settlement.
III. CURRENT PARTY POSITIONS — SUMMARY OF GAPS
A. Overview Table of Key Contested Issues
The following table summarizes the current positions of all parties on the five principal contested issues in this proceeding, together with the magnitude of the gap between Ridgeline's revised position and the intervenors' positions:
Several observations about this table merit emphasis. First, the intervenors are substantially aligned on rate level, with ATPC, MGPC, and CMGA all coalescing around a maximum acceptable rate in the range of $0.2560/Dth. This alignment gives the intervenors collective leverage that they would not possess individually. Second, the interconnection cost allocation dispute is largely bilateral between Ridgeline and ATPC; MGPC has taken no formal position on this issue, and CMGA has simply endorsed ATPC's 50/50 proposal. Third, the capital structure dispute has been raised by ATPC but has not been fully developed; ATPC has suggested in prior filings that Ridgeline's 55% equity ratio is excessive but has not specified an alternative. MGPC has generally accepted the capital structure, and CMGA has taken no position. The capital structure issue may prove to be a secondary negotiating point rather than a primary source of dispute.
B. Rate Gap Analysis
A thorough understanding of the quantitative gap between the parties' positions is essential to evaluating the feasibility of settlement at this conference. The analysis below provides a detailed breakdown of the rate gap and its sensitivity to changes in key inputs.
Ridgeline's current position: The revised recourse rate of $0.3140/Dth is derived from a total cost of service of $103.15 million divided by annual billing determinants of 328,500,000 Dth (calculated as design capacity of 1,200,000 Dth/day × 365 days × 75% load factor). This rate represents a significant change from the original proposed rate of $0.2265/Dth, which was based on a higher ROE (14.00%) but a higher load factor (100%), resulting in higher billing determinants (438,000,000 Dth/year) that more than offset the higher cost of service. The revised rate is higher than the original rate because the reduction in load factor from 100% to 75% reduces billing determinants by approximately 25%, causing the per-unit rate to increase even as the total cost of service has been modestly reduced through the lower ROE.
Intervenors' combined position: ATPC and MGPC have indicated, both formally and informally, that any settlement rate should not exceed approximately $0.2560/Dth. This figure appears to be based on the intervenors' preferred inputs: an ROE in the range of 10.75% to 11.25%, a load factor of 85% or higher, and certain adjustments to operating expenses and rate base that the intervenors contend are warranted. CMGA has endorsed this ceiling without independent analysis.
Absolute gap: The difference between Ridgeline's revised rate of $0.3140/Dth and the intervenors' ceiling of approximately $0.2560/Dth is $0.058/Dth.
Revenue impact of gap: At Ridgeline's proposed billing determinants of 328,500,000 Dth/year (75% load factor), the $0.058/Dth gap translates to approximately $19.05 million per year in cost-of-service terms. This is the annual revenue shortfall that Ridgeline would experience if it were required to accept the intervenors' rate without any adjustment to load factor or other inputs.
Load factor sensitivity: If the intervenors' preferred load factor of 85% were adopted instead of Ridgeline's 75%, the annual billing determinants would increase to 372,300,000 Dth/year (1,200,000 × 365 × 85%). At Ridgeline's current cost of service of $103.15 million, this would produce a rate of $0.2771/Dth — still above the intervenors' ceiling of $0.2560/Dth, but meaningfully closer. The remaining gap at 85% load factor would be approximately $0.0211/Dth, or approximately $7.86 million per year in revenue terms.
ROE sensitivity: Each 25-basis-point reduction in the assumed ROE reduces the annual return on rate base by approximately $0.84 million (calculated as $612.40 million rate base × 55% equity ratio × 0.25% = $0.842 million). At 75% load factor billing determinants of 328,500,000 Dth/year, a $0.84 million annual cost-of-service reduction translates to a rate reduction of approximately $0.0026/Dth. Accordingly, a full 100-basis-point reduction in ROE (e.g., from 12.50% to 11.50%) would reduce the rate by approximately $0.0103/Dth, from $0.3140/Dth to approximately $0.3037/Dth. This illustrates that ROE concessions alone, within the range under discussion, cannot bridge the $0.058/Dth gap; movement on load factor and potentially on other cost-of-service components is also necessary.
C. Detailed Breakdown of Ridgeline's Revised Cost of Service ($103.15M)
The following is a detailed breakdown of Ridgeline's revised cost of service, which underlies the proposed recourse rate of $0.3140/Dth. This cost-of-service figure reflects the January 2024 tariff redesign incorporating Dr. Braswell's recommendations.
The weighted average cost of capital (WACC) of 9.2375% is calculated as follows:
• Equity component: 55% × 12.50% ROE = 6.875%
• Debt component: 45% × 5.25% cost of debt = 2.3625%
• WACC: 6.875% + 2.3625% = 9.2375%
The income tax allowance of $15.04 million is calculated by grossing up the pre-tax return at an effective combined federal and state income tax rate of approximately 26.13%, which reflects the 21% federal corporate income tax rate and the 6.5% West Virginia corporate net income tax rate, adjusted for the deductibility of state taxes in computing federal taxable income. This calculation is consistent with FERC's policy statement on income tax allowances for partnerships and limited liability companies to the extent that equity ownership interests are held by entities subject to income taxation.
The revenue credit of $6.00 million represents projected revenues from interruptible transportation service, parking and lending services, and other ancillary services that offset firm transportation service costs. This credit has been increased from the original filing (which projected $4.25 million in revenue credits) based on updated utilization projections developed by Dr. Orlov and reviewed by Dr. Braswell.
D. Ridgeline's Rate Base Components ($612.40M)
The rate base underlying the cost-of-service calculation is composed of the following elements:
Net plant in service of $563.71 million reflects the original construction cost of $587.2 million for the 187-mile, 24-inch-diameter pipeline from Wetzel County, West Virginia, to Greene County, Pennsylvania, less accumulated depreciation of $23.49 million through the test period. The construction cost includes the pipeline itself, compressor stations, metering facilities, SCADA systems, and related appurtenances. The pipeline achieved commercial in-service on October 1, 2021, and has been in continuous operation since that date, currently operating at approximately 680 MMcf/d throughput, or approximately 56.67% of its 1.2 Bcf/d design capacity.
The working capital allowance of $18.64 million is calculated using the FERC formula of one-eighth of annual operations and maintenance plus administrative and general expenses: ($13.92M + $5.14M) / 8 = $2.3825M × 8 = $18.64M (rounded). This approach is consistent with established FERC methodology and has not been contested by any party.
The accumulated deferred income tax (ADIT) balance of $12.45 million represents the deferred tax liability associated with accelerated depreciation for income tax purposes relative to straight-line depreciation for book and regulatory purposes. Under FERC's ratemaking policy, the ADIT balance is deducted from rate base because it represents cost-free capital provided by ratepayers through the timing difference between tax and book depreciation.
IV. DEH BOARD AUTHORITY LIMITS AND CONCESSION PARAMETERS
A. Authorization Received
Board authorization for the settlement negotiation parameters set forth in this Section IV was obtained through a written consent of Patricia Dunmore, in her capacity as Chairperson and 72% controlling shareholder of Desert Eagle Holdings LLC, dated January 8, 2024. Pursuant to the DEH operating agreement, Ms. Dunmore's written consent constitutes sufficient authorization for actions requiring Board approval, given her majority ownership interest and the operating agreement's provisions governing major transactions and settlements.
George Trujillo separately confirmed the authorized settlement parameters with James K. Winfield, CEO and President of Ridgeline Midstream Services LLC, by telephone on January 10, 2024. Mr. Winfield expressed concurrence with the parameters and indicated that Ridgeline's management team is supportive of the settlement approach outlined below, subject to the constraints imposed by the credit facility covenants described in Section VII.
The authorization parameters described in this Section IV represent binding limits on the Ridgeline team's authority at the fourth settlement conference. No member of the team is authorized to make offers or indicate flexibility beyond these parameters without first consulting with George Trujillo and Patricia Dunmore. If the negotiations reach a point where movement beyond the authorized parameters appears necessary to achieve a settlement, the team must request a recess and seek additional authorization from Ms. Dunmore, who will be present at the conference and available for real-time consultation.
B. Authorized Concession Parameters on ROE
Opening position at conference: The Ridgeline team's opening position on ROE shall be 12.50%, which is the current revised proposal as reflected in the January 2024 tariff redesign. George Trujillo should present this figure during the joint session as a position that already reflects a significant 150-basis-point reduction from the original 14.00% ROE.
Intermediate concession authority: The team is authorized to signal willingness to discuss an ROE in the range of the "low 12s" — specifically, the team may indicate flexibility down to 12.00% — if and only if such a signal is matched by meaningful movement from ATPC and MGPC on other contested issues, particularly load factor and interconnection cost allocation. A concession to 12.00% should not be offered unilaterally; it should be presented as part of a reciprocal exchange.
Floor (minimum acceptable ROE): The authorized floor is 11.50%. The team is not authorized to indicate acceptance of any ROE below 11.50% at this conference. If the negotiations reach a point where the intervenors insist on an ROE below 11.50% as a condition of settlement, the team must advise Settlement Judge Margolis that it needs to seek additional authorization from the Board and request a recess or an adjournment.
Rationale for the floor: An ROE of 11.50% remains above the midpoint of ATPC's proposed 10.75% and Ridgeline's revised 12.50%, which calculates to 11.625%. By setting the floor at 11.50%, Ridgeline maintains a position slightly below the mathematical midpoint, which demonstrates meaningful flexibility while preserving a defensible rate of return. The 11.50% figure is supported by Dr. Braswell's updated DCF proxy group analysis, which identifies a range of reasonableness for ROE based on a proxy group of comparable natural gas pipeline companies. Dr. Braswell's preliminary analysis indicates that an ROE of 11.50% falls within the upper portion of the range of reasonableness for new-entrant pipelines with risk profiles comparable to Ridgeline's, taking into account Ridgeline's construction-era risk, its relatively low current utilization (56.67%), and the concentration of its revenue base among a limited number of shippers.
C. Authorized Concession Parameters on Load Factor
Opening position at conference: The Ridgeline team's opening position on load factor shall be 75%, which represents the current revised proposal as reflected in the January 2024 tariff redesign. This position was revised downward from the original 100% load factor assumption in response to FERC Deficiency Item 4, which questioned the basis for the 100% load factor, and in recognition that a 100% load factor assumption is not supported by actual throughput data.
Intermediate concession authority: The team is authorized to discuss a load factor in the range of 78% to 80% if such movement is linked to favorable resolution on ROE and interconnection cost allocation. A concession on load factor should not be offered in isolation; it should be part of an integrated package.
Ceiling (maximum acceptable load factor): The authorized ceiling is 82%. The team is not authorized to accept or indicate acceptance of a load factor above 82% at this conference. If the intervenors insist on a load factor of 85% or higher, the team must advise that it needs additional authorization.
Financial constraint: At an 82% load factor, the annual billing determinants would be 1,200,000 Dth/day × 365 days × 82% = 359,160,000 Dth/year. At the current cost of service of $103.15 million, the resulting rate would be $103,150,000 / 359,160,000 = approximately $0.2872/Dth. While this rate remains above the intervenors' stated ceiling of $0.2560/Dth, it represents a meaningful concession from the 75% load factor rate of $0.3140/Dth. However, any load factor above 82% — when combined with potential ROE concessions — would risk producing a rate below approximately $0.27/Dth, which Angela Moretti has identified as the approximate threshold below which the rate would be insufficient to satisfy certain financial covenants under the Pinnacle National Bank credit facility. The team should therefore treat the 82% ceiling as a firm constraint driven by financing considerations, not merely a negotiating preference.
Operational context: Ridgeline's current actual utilization is only approximately 680 MMcf/d, which represents approximately 56.67% of the system's 1.2 Bcf/d design capacity. This actual utilization figure strongly supports Ridgeline's argument that a 100% load factor assumption was unrealistic and that even an 85% load factor assumption, as advocated by ATPC and MGPC, assumes a level of throughput that has not been demonstrated and is not reflected in current contracted volumes or market conditions. The 75% load factor proposed by Ridgeline is itself a generous assumption relative to actual utilization, effectively providing a subsidy to shippers by spreading costs over a volume base that exceeds actual throughput by approximately 18 percentage points.
D. Authorized Concession Parameters on Interconnection Cost Allocation
Opening position at conference: The Ridgeline team's opening position on interconnection cost allocation shall be 34.1% Ridgeline / 65.9% ATPC, corresponding to a cost sharing of $7.6 million for Ridgeline and $14.7 million for ATPC out of total interconnection facilities costs of $22.3 million at the Wetzel County Interconnect.
Intermediate concession authority: The team is authorized to move to an allocation of 40% Ridgeline / 60% ATPC, corresponding to $8.92 million for Ridgeline and $13.38 million for ATPC. This represents a $1.32 million increase in Ridgeline's share and an equivalent reduction in ATPC's share relative to the opening position. This movement should be presented as a meaningful concession, as it brings Ridgeline's share from approximately one-third to approximately two-fifths of the total cost.
Floor (maximum Ridgeline share): The team is not authorized to accept a Ridgeline share exceeding 45% ($10.035 million) at this conference. Any allocation above 45% for Ridgeline requires additional Board authorization from Ms. Dunmore.
Rationale for the proposed allocation: Ridgeline's cost-causation analysis supports the allocation of the majority share of interconnection costs to ATPC. The Wetzel County Interconnect provides ATPC's shippers with access to Ridgeline's 1.2 Bcf/d capacity pipeline, which serves as an incremental source of Marcellus and Utica shale gas supply for ATPC's 3.8 Bcf/d mainline system. Because ATPC's system is substantially larger than Ridgeline's, and because ATPC's shippers derive disproportionate benefit from the new supply source — in terms of supply diversity, reliability, and competitive pricing — cost-causation principles under FERC precedent support allocating the majority of interconnection costs to ATPC. Conversely, Ridgeline benefits from the interconnection primarily as a single delivery point on its 187-mile system, and that benefit is already reflected in Ridgeline's cost of service through its existing rates.
Strategic note on ATPC's 50/50 position: ATPC's proposed 50/50 allocation ($11.15 million each) is mathematically within the outer limit of Ridgeline's authorized range (the maximum Ridgeline share being 45%, or $10.035 million, which is less than the $11.15 million implied by a 50/50 split). Accordingly, ATPC's 50/50 proposal exceeds Ridgeline's authorized floor and cannot be accepted at this conference. However, if ATPC pairs its 50/50 demand with significant concessions on ROE (movement toward 12.00% or above) and load factor (acceptance of 78% or lower), the team should explore the possibility of seeking additional authorization from Ms. Dunmore during a recess.
E. Combined Settlement Envelope
A central principle of the Ridgeline team's approach at this conference is that rate concessions and interconnection concessions must be considered together as an integrated package, not in isolation. The team should resist any attempt by the intervenors or Settlement Judge Margolis to resolve individual issues piecemeal, as such an approach could result in Ridgeline making concessions on multiple issues without receiving corresponding consideration.
The total annual revenue impact of all authorized concessions, if fully utilized, is calculated as follows:
ROE concession from 12.50% to 11.50%: This reduces the annual return on rate base by approximately $3.37 million, calculated as $612.40 million rate base × 55% equity ratio × 1.00% ROE reduction = $612.40M × 0.55 × 0.01 = $3.37 million. This in turn reduces the total cost of service from $103.15 million to approximately $99.78 million.
Load factor concession from 75% to 80%: This increases annual billing determinants from 328,500,000 Dth/year to 350,400,000 Dth/year, calculated as 1,200,000 Dth/day × 365 days × 80% = 350,400,000 Dth/year.
Combined effect: The revised rate under the combined concession scenario would be approximately $99.78 million / 350,400,000 Dth/year = approximately $0.2848/Dth.
This combined concession rate of approximately $0.2848/Dth remains $0.0288/Dth above the intervenors' stated ceiling of $0.2560/Dth. In revenue terms, the remaining gap would be approximately $0.0288/Dth × 350,400,000 Dth/year = approximately $10.09 million per year. While this gap is substantially narrower than the original $19.05 million gap (at Ridgeline's current position of $0.3140/Dth and the intervenors' $0.2560/Dth), it remains significant and cannot be bridged solely through further concessions within the authorized parameters.
The team is therefore authorized to explore creative settlement structures to bridge the remaining gap, provided that the intervenors demonstrate genuine willingness to move from their stated ceiling of $0.2560/Dth. Such creative structures may include:
• Phased rate structure: A lower initial rate in the early years of service, stepping up to a higher rate in later years as throughput ramps up and construction-era risks diminish.
• Rate moratorium: A fixed-rate period during which neither party may seek rate changes, providing rate certainty to shippers in exchange for a rate at or above the intervenors' ceiling.
• Step-up provisions: Automatic rate adjustments tied to throughput milestones or inflation indices, reducing the need for future rate cases.
• Interconnection cost sharing linked to throughput: A formulaic cost allocation mechanism under which Ridgeline's share decreases (and ATPC's share increases) as throughput at the interconnect increases, rewarding Ridgeline for successful ramp-up.
These creative structures are discussed in greater detail in Section VI below.
F. Items NOT Subject to Concession
The following items are not subject to negotiation at this conference absent additional Board authorization from Patricia Dunmore. The team should not signal flexibility on any of these items.
Capital structure (55% equity / 45% debt). Ridgeline's proposed capital structure reflects the actual financing structure of the pipeline project. The 55% equity / 45% debt ratio corresponds to DEH's $337.2 million equity investment (comprising $37.2 million in direct equity contributions and $300 million in equity bridge financing subsequently converted to permanent equity) and $550 million in total debt (comprising the $400 million term loan and $150 million in second lien notes). While ATPC has contested the equity ratio as excessive, the actual capital structure is verifiable from audited financial statements and is not an assumption subject to adjustment. Any change to the regulatory capital structure from the actual capital structure would need to be supported by a finding that the actual structure is unreasonable — a determination that is more appropriately made in a hearing on the merits than in a settlement negotiation.
Cost of debt (5.25%). The 5.25% weighted average cost of debt reflects the actual blended cost of Ridgeline's two debt instruments: the senior secured term loan at SOFR plus 325 basis points (currently approximately 4.25% on a fully drawn basis, reflecting one-month SOFR rates in the range of 5.30–5.35% as of January 2024, though the initial all-in rate at closing was lower) and the 7.875% second lien notes. The precise weighted average depends on the relative outstanding balances, which are verifiable. The cost of debt is not an assumption or a policy judgment; it is a factual input that can be confirmed from loan documents and note indentures.
Depreciation rate (2.5%). The 2.5% annual straight-line depreciation rate corresponds to a 40-year depreciable life for the pipeline facilities, which is the standard depreciable life for natural gas transmission pipeline facilities under FERC policy. No party has contested the depreciation rate or the depreciable life.
Tariff structure as Part 284, Subpart G open-access transportation. Ridgeline's tariff is structured as an open-access transportation tariff under 18 C.F.R. Part 284, Subpart G, consistent with FERC's open-access requirements for natural gas pipelines. This structural framework is required by applicable regulations and is not subject to negotiation.
Filing of Interconnection Agreement as a FERC rate schedule. Deficiency Item 9 of the January 19, 2023 Deficiency Letter requires that the Interconnection Agreement between Ridgeline and ATPC for the Wetzel County Interconnect be filed as a rate schedule under Ridgeline's FERC Gas Tariff. This requirement is a matter of regulatory compliance and is non-negotiable.
V. TALKING POINTS BY ISSUE
This section provides detailed talking points organized by issue for use during the joint session presentation and caucus discussions. George Trujillo should use these talking points as a framework for the presentation and adapt them as the discussion evolves. The talking points are structured with opening statements, rebuttal points, and concession positioning guidance for each issue.
A. Return on Equity
Opening Statement. George Trujillo should open the discussion of ROE by emphasizing the magnitude of the concession that Ridgeline has already made on this issue. Ridgeline's original proposed ROE of 14.00% has been reduced by 150 basis points to 12.50% in the revised tariff filing, reflecting Ridgeline's genuine effort to narrow the gap between the parties. This 150-basis-point reduction represents a significant sacrifice by Ridgeline and its investors, reducing the annual return on rate base by approximately $5.05 million relative to the original filing. The intervenors should not dismiss this concession as insufficient without acknowledging its magnitude and offering corresponding movement on their own positions.
The revised ROE of 12.50% is supported by an updated discounted cash flow (DCF) proxy group analysis conducted by Dr. Raymond Braswell of Braswell Energy Consulting Group LLC. Dr. Braswell's analysis uses the most recent available data to establish a range of reasonableness for the ROE of natural gas pipeline companies, applying the two-step DCF methodology endorsed by FERC in its Opinion No. 531 line of precedent. The proxy group includes publicly traded natural gas pipeline master limited partnerships and C-corporations with comparable risk profiles. Based on this analysis, the range of reasonableness for ROE extends from approximately 9.75% at the low end to approximately 13.75% at the high end, with a median of approximately 11.50%. Ridgeline's proposed 12.50% ROE falls in the upper portion of this range, which is appropriate given the heightened risk factors associated with Ridgeline's status as a new-entrant pipeline.
Ridgeline's pipeline is a new-entrant pipeline that achieved commercial in-service only on October 1, 2021, and has been operating for approximately 27 months. It has no established operating history, no track record of throughput growth, and is currently operating at only 56.67% of its 1.2 Bcf/d design capacity. These circumstances present substantially greater risk than is faced by the established, diversified pipeline systems that dominate the DCF proxy group. FERC precedent recognizes that new-entrant pipelines may appropriately receive an ROE at the upper end of the zone of reasonableness to compensate investors for the additional construction, ramp-up, and market risk they bear. Ridgeline's proposed 12.50% ROE is consistent with this principle.
Rebuttal Points Against ATPC (10.75%) and MGPC (11.25%)
If ATPC reiterates its position of 10.75%, the following rebuttal points should be deployed:
• ATPC's proposed 10.75% ROE relies on a proxy group composed primarily of large, diversified, established pipeline companies with decades of operating history, extensive rate base, and mature throughput profiles. These companies — which include entities such as Marlowe Industries, Kinder Morgan, ONEOK, and Enterprise Products Partners — are not meaningfully comparable to Ridgeline, a single-asset, new-entrant pipeline with a 27-month operating history and a 56.67% utilization rate.
• ATPC's proposed ROE would place Ridgeline's return below the median of Dr. Braswell's proxy group range of reasonableness. While the Commission has not held that a pipeline is entitled to an above-median ROE as a matter of right, the circumstances of this case — particularly the new-entrant risk premium — strongly support an ROE at least at the median and preferably above it.
• At 10.75%, the return on equity would be insufficient to attract the equity capital necessary for Ridgeline to finance potential system enhancements and expansions, including the completion of the Wetzel County Interconnect. This rate of return does not adequately compensate investors for the risk of investing in a pipeline that is still in the ramp-up phase and that faces ongoing market uncertainty.
If MGPC reiterates its position of 11.25% through Dr. Eleanor Vasquez's testimony, the following additional rebuttal points should be deployed:
• Dr. Vasquez's analysis supporting an 11.25% ROE underweights the new-entrant risk premium. While Dr. Vasquez acknowledges that some premium may be appropriate for new-entrant pipelines, she quantifies that premium at only 25–50 basis points above the proxy group median, which is insufficient to reflect the magnitude of risk associated with Ridgeline's circumstances.
• Dr. Vasquez's analysis relies on dividend yield data that does not fully reflect current capital market conditions, including the significant increase in interest rates since early 2022. The rising interest rate environment has increased the cost of equity capital generally, and this increase should be reflected in a higher ROE for regulated pipelines. Dr. Braswell's updated analysis captures these changes more accurately.
• MGPC's 11.25% proposal, while closer to a reasonable range than ATPC's 10.75%, nevertheless fails to adequately account for Ridgeline's specific risk factors, including its single-asset risk profile, its geographic concentration in the Marcellus/Utica basin, and the uncertainty surrounding its ability to achieve contractual throughput levels sufficient to support the authorized rate of return.
Concession Positioning. During the caucus sessions, if Settlement Judge Margolis probes for flexibility on ROE, George Trujillo should signal willingness to discuss an ROE in the "low 12s" — specifically, the team may indicate that Ridgeline could consider an ROE of 12.00% — but only if this signal is reciprocated by meaningful movement from ATPC and MGPC on load factor and interconnection cost allocation. The signal should be framed conditionally, e.g.: "If we saw real movement on load factor and interconnection, we could imagine the parties finding common ground somewhere in the low 12s on ROE."
The team should not drop below 12.00% at this conference. The 11.50% floor is reserved for a potential final package offer at a later stage of negotiations, and its use at this conference would prematurely exhaust Ridgeline's negotiating room.
B. Load Factor
Opening Statement. George Trujillo should open the discussion of load factor by reminding the parties and Settlement Judge Margolis that Ridgeline's original proposed load factor of 100% has been revised to 75%, representing a dramatic change in rate design methodology. A 100% load factor assumed that billing determinants would equal full design capacity utilization, producing annual billing determinants of 438,000,000 Dth/year (1,200,000 Dth/day × 365 days × 100%). The revised 75% load factor produces billing determinants of 328,500,000 Dth/year — a reduction of approximately 109.5 million Dth/year. This revision was made in response to FERC Deficiency Item 4, which questioned the basis for the 100% load factor assumption, and in recognition that actual throughput data does not support such an optimistic assumption.
The revised 75% load factor is itself generous to shippers relative to what actual utilization data would support. Ridgeline's current throughput is approximately 680 MMcf/d, which represents approximately 56.67% of the system's 1.2 Bcf/d design capacity. If load factor were set at actual utilization, the billing determinants would be only approximately 248,472,000 Dth/year (1,200,000 × 365 × 56.67%), and the resulting rate would be approximately $0.4152/Dth — far above any party's position. By proposing a 75% load factor, Ridgeline is assuming approximately 18 percentage points of throughput growth above current levels, which benefits shippers by spreading costs over a larger volume base and reducing the per-unit rate.
A 75% load factor is defensible under FERC policy, which recognizes that new-entrant pipelines may appropriately use lower load factors to avoid under-recovery of costs during the ramp-up period. The Commission has acknowledged in numerous orders that requiring a new-entrant pipeline to use an 85% or higher load factor during its early years of operation could result in chronic under-recovery of costs, discouraging investment in new pipeline infrastructure and undermining the Commission's policy of encouraging the development of competitive natural gas transportation markets.
Rebuttal Points Against Intervenor Advocacy for 85%+
If ATPC, MGPC, or CMGA reiterate their position that the load factor should be set at 85% or higher, the following rebuttal points should be deployed:
• An 85% load factor assumption (producing billing determinants of 372,300,000 Dth/year) presupposes near-full subscription of Ridgeline's system capacity. This assumption is not supported by current contracted volumes, historical throughput data, or any credible market analysis presented in this proceeding. No party has identified specific shipper commitments or contractual arrangements that would support an 85% utilization assumption.
• Since achieving commercial in-service on October 1, 2021, Ridgeline's throughput has averaged approximately 680 MMcf/d — a figure that has remained relatively stable over the 27-month operating period. There is no evidence in the record of a sustained upward trend in throughput, no indication that throughput is approaching the 1,020 MMcf/d level that would correspond to an 85% load factor, and no basis for projecting such a ramp in the near or medium term.
• FERC policy recognizes the distinction between new-entrant pipelines in the ramp-up phase and established pipelines with mature throughput profiles. Established pipelines with long operating histories and diversified shipper bases may appropriately use higher load factors, as their historical throughput data provides a reliable basis for projection. New-entrant pipelines like Ridgeline, by contrast, lack such historical data and face greater uncertainty about future throughput levels. Setting the load factor at 85% for a pipeline operating at 56.67% effectively penalizes Ridgeline for building capacity to meet anticipated long-term demand rather than short-term throughput levels.
• The intervenors' advocacy for an 85% load factor is, in substance, an effort to shift throughput risk from shippers to the pipeline. If load factor is set at 85% and actual throughput remains at approximately 57%, Ridgeline will chronically under-recover its cost of service, leading to financial distress, potential covenant defaults under its credit facility, and ultimately a loss of investment in critical natural gas transportation infrastructure. This outcome is not in the public interest and is inconsistent with the Commission's policy of providing pipelines with a reasonable opportunity to earn their authorized rate of return.
Concession Positioning. During the caucus sessions, the team may indicate willingness to explore a load factor in the range of 78% to 80%, but only if combined with favorable resolution on ROE and interconnection cost allocation. The signal should be conditional and integrated: "We've come a long way from 100% to 75%. If we could resolve ROE and interconnection in a way that works for both sides, we might be able to find some flexibility on load factor — perhaps somewhere in the upper 70s."
The team should not exceed the 82% ceiling at this conference. If the intervenors press for 85%, the team should firmly but diplomatically decline and explain that a load factor of 85% is not supported by the evidence and would create unacceptable financial risk for Ridgeline and its lenders.
C. Interconnection Cost Allocation
Opening Statement. George Trujillo should open the discussion of interconnection cost allocation by providing context on the Wetzel County Interconnect and the basis for Ridgeline's proposed allocation.
The Wetzel County Interconnect is a planned interconnection facility between Ridgeline's 187-mile, 24-inch-diameter pipeline and ATPC's 30-inch mainline at ATPC Milepost 412.6 in Wetzel County, West Virginia. The total cost of the interconnection facilities is $22.3 million, which includes metering station equipment, pig launchers and receivers, associated piping and valves, SCADA integration, site preparation, and engineering and construction management.
Ridgeline proposes an allocation of 34.1% to Ridgeline and 65.9% to ATPC, corresponding to $7.6 million for Ridgeline and $14.7 million for ATPC. This allocation is based on cost-causation principles, which are the foundational standard for allocating costs under FERC's regulatory framework. The principle of cost causation requires that costs be allocated to the cost causer — that is, to the party whose use of the facility or service gives rise to the costs.
In this case, the interconnection serves a dual purpose: it provides Ridgeline with a delivery point on ATPC's mainline system, and it provides ATPC's shippers with access to an incremental source of Marcellus and Utica shale gas supply via Ridgeline's pipeline. However, the benefits are asymmetric. ATPC's existing mainline system has a capacity of 3.8 Bcf/d, and the addition of a supply source from Ridgeline's 1.2 Bcf/d pipeline enhances ATPC's system utilization, diversifies ATPC's supply portfolio, and provides ATPC's shippers with competitive advantages in terms of supply reliability and pricing. ATPC's shippers benefit from the interconnection not only through direct access to Ridgeline's gas, but also through the system-wide benefits of having an additional supply injection point on ATPC's mainline. By contrast, Ridgeline's benefit from the interconnection is limited to gaining a single delivery path for gas transported on its system — a benefit that is already reflected in Ridgeline's own cost of service and rates.
The disproportionate benefit to ATPC and its shippers supports an allocation in which ATPC bears the majority of the interconnection costs. This is consistent with FERC's long-standing cost-causation jurisprudence and with the Commission's approach to allocating interconnection costs in analogous proceedings.
Rebuttal of ATPC's 50/50 Position
If ATPC reiterates its proposed 50/50 split ($11.15 million each), the following rebuttal points should be deployed:
• ATPC's proposed 50/50 split is a simple equal division that ignores cost-causation principles. An equal allocation of costs is appropriate only where the benefits of the facility are equally shared between the two parties. Here, the benefits are demonstrably unequal: ATPC's 3.8 Bcf/d system captures a proportionally larger benefit from the interconnection than Ridgeline's 1.2 Bcf/d system. A cost-causation-based allocation should reflect this asymmetry.
• ATPC has not offered any cost