PRIVILEGED SETTLEMENT COMMUNICATION RULE 602 OF THE FERC RULES OF PRACTICE AND PROCEDURE
Settlement Offer of Ridgeline Midstream Services LLC Version 1.0
FERC Docket Nos. RP22-847-000 (Rate Case) and RP22-847-001 (Interconnection)
Submitted to: The Honorable Howard Margolis, Settlement Judge and All Parties of Record
November 22, 2022
Prepared by:
Calderwood & Harkness LLP 1601 K Street NW, Suite 900 Washington, DC 20006
On behalf of:
Ridgeline Midstream Services LLC 700 Kanawha Boulevard East, Suite 1400 Charleston, WV 25301
C&H Matter No. 1016-00005
NOTICE — PRIVILEGED AND CONFIDENTIAL SETTLEMENT COMMUNICATION
This document constitutes a confidential settlement proposal made pursuant to Rule 602 of the Commission's Rules of Practice and Procedure, 18 C.F.R. § 385.602. This document and its contents shall not be admissible in evidence or made part of the record in this or any other proceeding, and shall not be disclosed to the presiding Administrative Law Judge or the Commission except as authorized by Rule 602. All parties receiving this document are reminded that the unauthorized disclosure of any settlement communication, or the use of any settlement offer, discussion, or document in a hearing or other proceeding, is strictly prohibited by the Commission's Rules. Receipt of this document constitutes acceptance of these conditions.
Right-click to update Table of Contents
I. Introduction and Purpose
Ridgeline Midstream Services LLC ("Ridgeline"), a wholly owned subsidiary of Dunmore Energy Holdings Ltd. ("DEH"), hereby submits this initial settlement offer ("Settlement Offer" or "Version 1.0") to all parties of record in the proceedings pending before the Federal Energy Regulatory Commission ("FERC" or the "Commission") under Docket Nos. RP22-847-000 (Rate Case) and RP22-847-001 (Interconnection). This Settlement Offer is submitted pursuant to Rule 602 of the Commission's Rules of Practice and Procedure, 18 C.F.R. § 385.602, and is intended to serve as a framework for productive settlement discussions among the parties.
The purpose of this Settlement Offer is to facilitate constructive negotiations at the first settlement conference scheduled for November 30, 2022, before the Honorable Howard Margolis, Settlement Judge. Ridgeline has prepared this document with the goal of presenting a comprehensive, good-faith proposal that addresses each of the principal contested issues in these proceedings and provides a reasonable basis upon which all parties may engage in meaningful dialogue toward a consensual resolution.
Ridgeline expressly desires to resolve all contested issues arising in these consolidated docket proceedings through a negotiated settlement agreement that avoids the costs, delays, and uncertainty inherent in protracted litigation before the Commission. Ridgeline believes that a settlement in this matter will serve the public interest by providing rate certainty for shippers and producers, ensuring the timely construction and operation of critical natural gas infrastructure in the Appalachian Basin, and promoting the efficient use of Commission and party resources. Settlement in rate proceedings has long been favored by the Commission as a means of achieving just and reasonable outcomes that reflect the informed judgment of the affected parties, and Ridgeline is committed to engaging in this process in a spirit of good faith and mutual respect.
By way of procedural background, Ridgeline filed its application in these dockets on May 12, 2022, pursuant to Sections 4 and 7 of the Natural Gas Act ("NGA"), 15 U.S.C. §§ 717c, 717f, and the Commission's regulations at 18 C.F.R. Parts 154, 157, and 284. Interventions were sought by multiple parties during the notice period, and by order issued September 22, 2022, the Commission granted all timely motions to intervene, set the matter for hearing under a Track II procedural schedule, and established the hearing and settlement tracks to proceed in parallel. Administrative Law Judge Clara Whitfield was appointed as the presiding judge on November 14, 2022, and a prehearing conference was held shortly thereafter.
During the intervention period, Appalachian Trunk Pipeline Company, LLC ("ATPC") filed a protest and motion to intervene on August 15, 2022, raising objections to the proposed interconnection configuration at the Wetzel County Interconnect, the cost allocation methodology for interconnection facilities, and certain aspects of the metering station design. Ridgeline filed its answer to the ATPC protest on October 17, 2022, addressing each of ATPC's concerns in detail. The Mountainside Gas Producers Coalition ("MGPC") filed a motion to intervene and comments on July 28, 2022, expressing general support for the proposed interconnection but opposing the proposed recourse rate as excessive. The Clearwater Municipal Gas Authority ("CMGA") filed a motion to intervene and comments on August 1, 2022, expressing concern about potential rate increases to ATPC's existing shippers and supporting ATPC's cost allocation position.
Ridgeline's direct testimony of seven witnesses is currently scheduled for filing on December 5, 2022. Ridgeline intends to proceed with the preparation and filing of that testimony as scheduled, irrespective of the pendency of settlement discussions, consistent with Commission policy and the procedural schedule established in the September 22, 2022 order.
This Settlement Offer is submitted in accordance with the settlement framework established by 18 C.F.R. § 385.602 and the Commission's longstanding policy of encouraging the settlement of rate cases and other contested proceedings. See, e.g., Trailblazer Pipeline Co., 87 FERC ¶ 61,110 (1999); Vireo Industries., 84 FERC ¶ 61,084 (1998). The Commission has repeatedly recognized that settlements reached by informed parties in contested proceedings are presumptively in the public interest and should be approved absent a showing that the settlement is inconsistent with the public interest or the policies underlying the NGA. Ridgeline respectfully submits that the terms proposed herein provide a reasonable basis for achieving such a result.
II. Parties to This Settlement Offer
The following is a summary of the parties of record in Docket Nos. RP22-847-000 and RP22-847-001, together with their respective contact and identification information, for reference in the settlement discussions.
A. Ridgeline Midstream Services LLC (Applicant)
Ridgeline Midstream Services LLC ("Ridgeline") is a limited liability company organized and existing under the laws of the State of Delaware. Ridgeline's sole member is Dunmore Energy Holdings Ltd. ("DEH"), a Cayman Islands exempted limited company registered under Company Registration No. CR-381204.
Ridgeline's principal office is located at 700 Kanawha Boulevard East, Suite 1400, Charleston, West Virginia 25301. Ridgeline's registered agent in the State of Delaware is Capitol Filings Inc., located at 1209 Orange Street, Wilmington, Delaware 19801.
Ridgeline's Employer Identification Number (EIN) is 87-4231956. Ridgeline's FERC Code is 960442.
Ridgeline is represented in these proceedings by the law firm of Calderwood & Harkness LLP, 1601 K Street NW, Suite 900, Washington, DC 20006. The attorneys responsible for this matter are as follows:
George Trujillo, Responsible Partner Brett Callahan, Lead Associate David Stanton, Working Associate
B. Appalachian Trunk Pipeline Company, LLC (Intervenor/Protestant)
Appalachian Trunk Pipeline Company, LLC ("ATPC") is a limited liability company organized and existing under the laws of the Commonwealth of Pennsylvania. ATPC's parent company is Tidewater Infrastructure Partners LP, a Delaware limited partnership whose general partner is Tidewater GP Inc.
ATPC's principal office is located at 2200 Penn Center West, Suite 300, Pittsburgh, Pennsylvania 15276. ATPC's registered agent in the Commonwealth of Pennsylvania is Keystone Corporate Services LLC, located at 600 North Second Street, Harrisburg, Pennsylvania 17101.
ATPC's Employer Identification Number (EIN) is 25-1987643. ATPC's FERC Code is 840117. ATPC's Chief Executive Officer is Marcus R. Alderman, and its Vice President of Regulatory Affairs is Sandra K. Fenton.
ATPC is represented in these proceedings by the law firm of Kellner, Royce & Dillard LLP, One PPG Place, Suite 2800, Pittsburgh, Pennsylvania 15222. The lead attorney for ATPC is William Pratt, Senior Partner.
ATPC filed its protest and motion to intervene on August 15, 2022, opposing the proposed interconnection configuration at the Wetzel County Interconnect and the cost allocation methodology for interconnection facilities. ATPC contends that Ridgeline's proposed cost allocation improperly shifts approximately $14.7 million in interconnection facilities costs to ATPC shippers and instead advocates a 50/50 cost split.
C. Mountainside Gas Producers Coalition (Intervenor)
The Mountainside Gas Producers Coalition ("MGPC") is an unincorporated association comprised of fourteen (14) independent natural gas producers operating in the Marcellus and Utica shale formations in West Virginia, Ohio, and Pennsylvania. The Executive Director of MGPC is Calvin Dreyer.
MGPC's address is 1100 Main Street, Suite 210, Morgantown, West Virginia 26505.
MGPC is represented in these proceedings by the law firm of Whitmore & Sable LLP, 1200 New Hampshire Avenue NW, Suite 600, Washington, DC 20036. The lead attorney for MGPC is Rebekah Montague, Partner. MGPC's retained rate expert is Dr. Eleanor Vasquez.
MGPC filed its motion to intervene and comments on July 28, 2022. MGPC generally supports the proposed interconnection as beneficial to its member producers but opposes Ridgeline's proposed recourse rate as excessive, advocating a cost-of-service rate no higher than $0.1740/Dth.
D. Clearwater Municipal Gas Authority (Intervenor)
The Clearwater Municipal Gas Authority ("CMGA") is a municipal authority organized and existing under the Municipality Authorities Act of the Commonwealth of Pennsylvania. The General Manager of CMGA is Dennis Ott.
CMGA's address is 455 Market Street, Clearwater, Pennsylvania 15330.
CMGA is represented in these proceedings by Fordham Municipal Law Group PC, 312 Adams Avenue, Suite 100, Scranton, Pennsylvania 18503. The lead attorney for CMGA is Stephen Greer, Principal.
CMGA filed its motion to intervene and comments on August 1, 2022. CMGA is primarily concerned about the potential for rate increases on the ATPC system that may result from the proposed interconnection and the associated cost allocation. CMGA generally supports ATPC's position on cost allocation.
E. FERC Trial Staff
FERC Trial Staff participates in these proceedings pursuant to the Commission's Rules of Practice and Procedure. The lead Trial Staff personnel are as follows:
Jonathan Briggs, Lead Trial Attorney, Office of the General Counsel, Federal Energy Regulatory Commission
Dr. Miriam Okafor, Lead Economic Analyst, Office of Energy Market Regulation, Federal Energy Regulatory Commission
FERC Trial Staff's address is 888 First Street NE, Washington, DC 20426.
III. Background and Summary of Filed Positions
To provide context for the settlement proposals set forth in Section IV below, this section summarizes the relevant background of the Ridgeline Pipeline System, Ridgeline's filed rate and cost of service, and the positions taken by the intervenors and protestant.
A. The Ridgeline Pipeline System
The Ridgeline Pipeline System (the "System") is a 187-mile, 24-inch-diameter high-pressure natural gas transmission pipeline extending from its receipt point at the Wetzel County Interconnect in Wetzel County, West Virginia (approximate coordinates: 39.6120° N, 80.7540° W) to its delivery point at the Waynesburg Compressor Station in Greene County, Pennsylvania (approximate coordinates: 39.8965° N, 80.1810° W). The System was placed in service on October 1, 2021, following completion of construction at an original cost of approximately $587.2 million.
The System has a design capacity of 1.2 billion cubic feet per day ("Bcf/d"), equivalent to 1,200,000 dekatherms per day ("Dth/d") at an assumed heat content of 1,000 BTU per cubic foot. Current throughput on the System is approximately 680 million cubic feet per day ("MMcf/d"), representing a utilization rate of approximately 56.67 percent of design capacity.
The System includes three compressor stations: the Wetzel Station, the Mannington Station, and the Waynesburg Station. The aggregate installed compression capacity across these three stations is 45,000 horsepower ("HP"). These compressor stations are equipped with gas-fired reciprocating and turbine-driven compressor units and are designed to maintain pipeline operating pressures sufficient to support the full 1.2 Bcf/d design capacity.
Ridgeline provides open-access natural gas transportation service under Part 284, Subpart G of the Commission's regulations, 18 C.F.R. Part 284, Subpart G. Ridgeline's rates, terms, and conditions of service are set forth in its FERC Gas Tariff, Original Volume No. 1. The System is subject to the jurisdiction of the Commission under Sections 4, 5, and 7 of the Natural Gas Act, 15 U.S.C. §§ 717c, 717d, and 717f, and the Commission's implementing regulations at 18 C.F.R. Parts 154, 157, and 284.
B. Ridgeline's Filed Rate and Cost of Service (May 12, 2022 Application)
On May 12, 2022, Ridgeline filed its application in Docket No. RP22-847-000 pursuant to Section 4 of the NGA, proposing initial rates for transportation service on the System. The following is a summary of the principal components of Ridgeline's filed cost of service and rate derivation:
Rate Base (As Filed): $612.40 million
The components of Ridgeline's filed rate base are as follows:
The test year for purposes of the filed cost of service ended March 31, 2022. Net plant in service of $563.71 million reflects the original construction cost of $587.2 million less accumulated depreciation of $23.49 million through the end of the test year. The ADIT balance of $12.45 million reduces rate base consistent with the Commission's normalization requirements and the Tax Cuts and Jobs Act of 2017.
Capital Structure and Return
Ridgeline's filed capital structure consists of 55 percent equity and 45 percent debt. The proposed return on equity ("ROE") is 14.00 percent, derived from a discounted cash flow ("DCF") proxy group analysis of comparable natural gas pipeline companies. The cost of debt is 5.25 percent, representing the weighted average cost of Ridgeline's two principal debt instruments: a $400 million senior secured term loan led by Pinnacle National Bank, N.A. (bearing interest at the Secured Overnight Financing Rate plus 325 basis points) and $150 million in 7.875% Second Lien Notes.
The resulting weighted average cost of capital ("WACC") is 10.0625 percent, calculated as follows:
WACC = (0.55 × 14.00%) + (0.45 × 5.25%) = 7.70% + 2.3625% = 10.0625%
The return on rate base, calculated by applying the WACC to the total rate base, is $61.62 million ($612.40 million × 10.0625%).
Operating Expenses and Taxes
The income tax allowance reflects a combined effective tax rate of approximately 26.13 percent, which consists of the 21 percent federal corporate income tax rate and the 6.5 percent West Virginia state corporate net income tax rate, applied on a grossed-up basis consistent with Commission methodology.
Revenue Credits
Revenue credits of $16.10 million reduce the cost of service, reflecting projected revenues from interruptible transportation, overrun charges, and other miscellaneous revenues.
Total Cost of Service and Rate Derivation
Ridgeline's proposed billing determinants are 438,000,000 Dth per year, calculated by multiplying the System's design capacity of 1,200,000 Dth/d by 365 days and applying a 100 percent load factor assumption.
The resulting proposed recourse rate is $0.2265/Dth, comprised of a reservation charge of $0.2223/Dth and a usage charge of $0.0042/Dth.
C. ATPC's Opposition
ATPC filed its protest and motion to intervene on August 15, 2022. The principal grounds of ATPC's protest are as follows:
First, ATPC contends that the proposed receipt-point metering station design at the Wetzel County Interconnect is inadequate to ensure accurate measurement and proper gas quality monitoring at the point of interconnection with ATPC's existing 30-inch mainline. ATPC argues that additional metering redundancy and gas quality equipment are necessary to protect the operational integrity of the ATPC system.
Second, ATPC argues that Ridgeline's proposed cost allocation methodology for interconnection facilities improperly shifts approximately $14.7 million of the $22.3 million total estimated interconnection cost to ATPC and its shippers. ATPC contends that a 50/50 cost allocation, resulting in each party bearing approximately $11.15 million, would more appropriately reflect the mutual benefits of the interconnection and would be consistent with cost-causation principles.
Third, ATPC asserts that the proposed interconnection at ATPC Milepost 412.6 on ATPC's existing 30-inch mainline will require infrastructure modifications to the ATPC system that are not reflected in Ridgeline's cost estimates or its proposed cost allocation, and that Ridgeline's proposal fails to account for the full scope of construction and operational impacts on ATPC's system.
CMGA supports ATPC's position on cost allocation, as set forth in CMGA's comments filed August 1, 2022.
D. MGPC's Position
MGPC filed its motion to intervene and comments on July 28, 2022. MGPC generally supports the proposed Ridgeline interconnection, recognizing that it will benefit MGPC's fourteen member producers by providing additional pipeline capacity and access to downstream natural gas markets in Pennsylvania, Ohio, and New York via the ATPC interstate system.
However, MGPC opposes Ridgeline's proposed recourse rate of $0.2265/Dth as excessive and not reflective of a just and reasonable cost of service. In its initial comments, MGPC advocates a cost-of-service rate no higher than $0.1740/Dth. MGPC has filed the testimony of its retained rate expert, Dr. Eleanor Vasquez, in support of its position. Dr. Vasquez's testimony addresses, among other things, the appropriate ROE, capital structure, and operating expense levels for the System.
IV. Ridgeline's Settlement Proposal
In light of the foregoing background and party positions, Ridgeline proposes the following settlement terms for consideration by all parties of record. These terms are intended to address the principal contested issues in these proceedings and to provide a framework for further negotiations.
A. Proposed Settlement Rate
1. Recourse Rate
Ridgeline proposes a negotiated recourse rate for firm transportation service on the System of $0.2100 per Dth, comprised of the following components:
Reservation Charge: $0.2060/Dth Usage Charge: $0.0040/Dth Total Recourse Rate: $0.2100/Dth
This proposed settlement rate represents a reduction of $0.0165/Dth from Ridgeline's filed recourse rate of $0.2265/Dth, or an approximately 7.3 percent reduction from the filed rate. Ridgeline submits that this reduction constitutes a meaningful and substantial concession from its filed position and reflects Ridgeline's good-faith effort to narrow the range of dispute among the parties.
The proposed settlement rate would become effective as of the date of the Commission's order approving the settlement agreement. For the avoidance of doubt, the settlement rate would not apply retroactively to any period prior to the effective date of the Commission's approval order.
Ridgeline proposes that the settlement rate be treated as a "black box" settlement rate. That is, the parties would not be required to agree upon or specify the individual cost-of-service components, the ROE, the capital structure, or any other specific cost-of-service inputs as the basis for the negotiated rate. The black box approach is well established in Commission settlement practice and has been approved by the Commission in numerous rate proceedings. See, e.g., NorCal Pipeline Co., 131 FERC ¶ 61,068 (2010); El Paso Natural Gas Co., 132 FERC ¶ 61,139 (2010). The black box approach permits the parties to reach agreement on an overall rate level that each party can accept as just and reasonable, without the need to resolve every underlying cost-of-service dispute.
2. Moratorium Period
Ridgeline proposes a rate moratorium period of three (3) years from the effective date of the settlement rate. During the moratorium period:
(a) Ridgeline would not file to increase its recourse rates under Section 4 of the NGA, 15 U.S.C. § 717c; and
(b) No party to the settlement agreement would file a complaint under Section 5 of the NGA, 15 U.S.C. § 717d, to reduce Ridgeline's rates during the moratorium period.
The three-year moratorium period provides rate stability and certainty for all parties, including Ridgeline's shippers and its lenders. Rate moratorium provisions of this type are commonly included in FERC-approved settlement agreements and serve the public interest by reducing regulatory uncertainty, avoiding the costs of frequent rate litigation, and enabling long-term infrastructure planning. At the conclusion of the moratorium period, all rights of Ridgeline and the parties under Sections 4 and 5 of the NGA would be fully preserved.
3. Rate Design Elements
The following rate design elements are proposed as part of the settlement:
Rate Design Methodology. The settlement rate would employ a straight fixed-variable ("SFV") rate design, consistent with the Commission's policy for natural gas pipeline rates. Under SFV rate design, all fixed costs, including return on equity, depreciation, and fixed operating costs, are recovered through the reservation charge, while variable costs are recovered through the usage charge. The 100 percent load factor billing determinant assumption used in deriving Ridgeline's filed rate would be maintained for settlement rate derivation purposes.
Firm Transportation Service (FT-1). Firm transportation service on the System would be provided at the settlement recourse rate of $0.2100/Dth, as described above. Firm shippers would be entitled to the rights and obligations set forth in Ridgeline's FERC Gas Tariff, as modified by the settlement, including capacity release rights consistent with Commission policy.
Interruptible Transportation Service (IT-1). Interruptible transportation service on the System would be provided at a rate equal to 100 percent of the daily equivalent of the maximum FT-1 recourse reservation charge, plus the applicable usage charge. This interruptible rate is designed to be consistent with the Commission's policies regarding the pricing of interruptible service on open-access pipelines.
B. Proposed Interconnection Terms
1. Interconnection Configuration
Ridgeline proposes the following configuration for the physical interconnection between the Ridgeline Pipeline System and the ATPC system at the Wetzel County Interconnect:
Location. The interconnection would be located at the Wetzel County Interconnect, at Milepost 0.0 of the Ridgeline Pipeline System, tying into ATPC's existing 30-inch mainline at ATPC Milepost 412.6. The interconnection facilities would include a new meter station and pig launcher/receiver at the Ridgeline receipt point.
Metering Equipment. The meter station would be equipped with ultrasonic flow meters consisting of three (3) metering runs, each with a 12-inch meter tube. Gas chromatographs would be installed at the interconnect for continuous gas quality monitoring. All metering and measurement equipment would be fully integrated with supervisory control and data acquisition ("SCADA") systems on both the Ridgeline and ATPC systems to enable real-time flow monitoring and operational coordination.
Design Capacity. The interconnection facilities would be designed for an initial capacity of 800 MMcf/d bidirectional, with the capability to be expanded to the full 1.2 Bcf/d design capacity of the Ridgeline Pipeline System through the addition of metering runs and compression enhancements.
Target In-Service Date. The target in-service date for the interconnection facilities is the fourth quarter of 2023 (Q4 2023), subject to the resolution of this proceeding, receipt of all necessary regulatory approvals, and completion of construction activities.
Ridgeline believes that this interconnection configuration addresses the principal operational and design concerns raised by ATPC in its protest. Ridgeline is prepared to discuss further details of the metering station design, including metering redundancy, gas quality specifications, and operational protocols, at the settlement conference.
2. Cost Allocation
The total estimated cost of the interconnection facilities is $22.3 million. This estimate encompasses the meter station, pig launcher/receiver, interconnection piping, SCADA integration, and associated civil and electrical work.
For purposes of this settlement, Ridgeline proposes the following modified cost allocation:
This proposed allocation represents a meaningful movement from Ridgeline's filed position toward ATPC's preferred 50/50 cost split. Under Ridgeline's original filing, the cost allocation was approximately 34.1 percent to Ridgeline ($7.6 million) and 65.9 percent to ATPC ($14.7 million). Under ATPC's proposed 50/50 allocation, each party would bear $11.15 million. The settlement proposal of 40/60 percent results in Ridgeline's share increasing by approximately $1.32 million (from $7.6 million to $8.92 million) and ATPC's share decreasing by approximately $1.32 million (from $14.7 million to $13.38 million).
Ridgeline submits that this proposed cost allocation is consistent with cost-causation principles and reflects the relative benefits received by each party from the interconnection. The Ridgeline Pipeline System will benefit from the interconnection by gaining access to ATPC's 640-mile interstate system and its 3.8 Bcf/d capacity, providing Ridgeline's shippers with access to downstream markets in Pennsylvania, Ohio, and New York. At the same time, the ATPC system will benefit from the additional supply of natural gas from the Marcellus and Utica shale formations that will flow through the Ridgeline Pipeline System. The Commission has long held that the costs of interconnection facilities should be allocated in a manner that reflects the benefits received by the interconnecting parties. See, e.g., Iroquois Gas Transmission System, L.P., 84 FERC ¶ 61,086 (1998); Texas Eastern Transmission, LP, 141 FERC ¶ 61,043 (2012).
3. Interconnection Agreement
Ridgeline proposes to negotiate and execute an Interconnection Agreement with ATPC that would govern the design, construction, operation, and maintenance of the interconnection facilities at the Wetzel County Interconnect. Consistent with Commission requirements, the Interconnection Agreement would be filed with FERC as a rate schedule and would be subject to Commission review and approval.
The Interconnection Agreement would address, at a minimum, the following matters:
(a) Construction responsibilities, including the division of engineering, procurement, and construction obligations between Ridgeline and ATPC;
(b) Testing protocols, including hydrostatic testing, meter proving, and operational readiness verification;
(c) Operational procedures, including nomination and scheduling coordination, flow control protocols, operational balancing arrangements, and gas quality specifications;
(d) Maintenance obligations, including routine and preventive maintenance responsibilities, emergency repair procedures, and outage coordination;
(e) Force majeure provisions, including the definition of force majeure events, notice requirements, and the obligations of the parties during force majeure events; and
(f) Dispute resolution procedures, including negotiation, mediation, and, if necessary, arbitration or Commission complaint proceedings.
Ridgeline is prepared to work with ATPC to develop the specific terms of the Interconnection Agreement as part of the settlement negotiations and to circulate a draft agreement for review and comment by all parties in advance of the second settlement conference, if scheduled.
C. Proposed Tariff Modifications
1. General Terms and Conditions Enhancements
As part of the settlement, Ridgeline offers to include the following enhancements to the General Terms and Conditions ("GT&C") of its FERC Gas Tariff, Original Volume No. 1:
Capacity Release Provisions. Ridgeline would incorporate capacity release provisions consistent with the Commission's capacity release policies, including prearranged deal posting requirements, bidding procedures, recall and reput rights, and reporting obligations. These provisions would enable firm shippers to release their capacity to replacement shippers in a transparent and non-discriminatory manner.
Operational Flow Order Provisions. Ridgeline would include operational flow order ("OFO") provisions aligned with the standards promulgated by the North American Energy Standards Board, Wholesale Gas Quadrant ("NAESB WGQ"). These provisions would establish the conditions under which Ridgeline may issue OFOs, the notice requirements for OFOs, the penalties for shipper non-compliance, and the operational procedures during OFO events.
Electronic Bulletin Board Posting Requirements. Ridgeline would maintain an electronic bulletin board ("EBB") that complies with the Commission's standards for informational postings, including available capacity, scheduled flows, capacity release transactions, and operational notices. The EBB would be accessible to all shippers and potential shippers on a non-discriminatory basis.
Shipper-Must-Have-Title Provisions. Ridgeline would include shipper-must-have-title provisions in its tariff, consistent with the Commission's Order No. 712 and related policies, requiring shippers to demonstrate title to the gas tendered for transportation at the applicable receipt point.
Penalty Revenue Crediting Mechanism. Ridgeline would adopt a penalty revenue crediting mechanism under which penalties collected from shippers who violate operational flow orders or other tariff provisions would be credited to non-offending shippers in proportion to their firm capacity entitlements. This mechanism is consistent with the Commission's policy of ensuring that pipelines do not retain penalty revenues as a profit center.
2. Items Not Addressed in This Proposal
Ridgeline notes that certain tariff provisions require further development and analysis and are not resolved by this Settlement Offer. These items include, but are not limited to:
(a) A fuel, lost, and unaccounted-for gas ("FL&U") tracker mechanism, which would provide for periodic adjustments to the FL&U retention percentage based on actual system experience;
(b) Creditworthiness provisions, including the criteria for evaluating shipper creditworthiness and the forms of acceptable credit support (letters of credit, guarantees, prepayments, etc.);
(c) Segmentation and flexible receipt and delivery point provisions, which would allow shippers to utilize capacity on segmented portions of the System or to designate alternative receipt and delivery points;
(d) Greenhouse gas ("GHG") emission cost recovery provisions, which would address the potential for recovery of costs associated with future federal or state GHG regulations; and
(e) Implications of the Commission's Order No. 2222 and related proceedings on Ridgeline's tariff provisions.
Ridgeline is prepared to address these items in supplemental filings, subsequent settlement conferences, or a revised settlement offer if warranted by the progress of negotiations. Ridgeline does not intend for the deferral of these items to delay the resolution of the principal contested issues addressed in this Settlement Offer.
V. Basis for Settlement Proposal
A. Public Interest Benefits
Ridgeline submits that the settlement terms proposed herein serve the public interest for several important reasons.
First, settlement of these proceedings would avoid the substantial costs and delays associated with a protracted Track II hearing before ALJ Whitfield. The hearing schedule currently contemplates multiple rounds of direct, answering, and rebuttal testimony, followed by an evidentiary hearing and post-hearing briefing. If the proceeding goes to hearing, a final Commission order may not be issued for eighteen months or more after the conclusion of the evidentiary hearing, during which time Ridgeline's rates, the interconnection, and the associated infrastructure investment remain subject to uncertainty.
Second, the proposed settlement rate of $0.2100/Dth is just and reasonable within the meaning of Section 4 of the NGA. The settlement rate is below Ridgeline's filed rate and reflects a meaningful concession by Ridgeline from its litigation position. While the settlement rate is above the rate level advocated by MGPC, it represents a significant narrowing of the range of dispute and provides a reasonable basis for compromise.
Third, the proposed interconnection at the Wetzel County Interconnect will provide tangible benefits to shippers and producers throughout the Appalachian Basin. The fourteen independent natural gas producers comprising the MGPC membership will gain additional pipeline capacity and access to downstream markets in Pennsylvania, Ohio, and New York via the ATPC 640-mile interstate system, which has a capacity of 3.8 Bcf/d. The interconnection will increase the available transportation outlets for Marcellus and Utica shale gas production, enhance the competitive options available to producers and shippers, and support the development of natural gas resources in the region.
Fourth, the three-year rate moratorium period provides meaningful rate certainty for all parties. Shippers will be assured of stable transportation costs over the moratorium period, enabling them to plan their business activities with greater confidence. Ridgeline's lenders will benefit from the revenue predictability associated with a settled and approved rate. The Commission and the parties will be relieved of the burden and expense of a rate proceeding during the moratorium period.
B. Comparison to Filed Positions
The following tables compare the principal settlement terms proposed by Ridgeline with the positions taken by the parties in their respective filings:
Table 1 — Recourse Rate Comparison
Ridgeline's proposed settlement rate of $0.2100/Dth is approximately 31.4 percent of the way from Ridgeline's filed rate toward MGPC's advocated ceiling, and represents a 7.3 percent reduction from Ridgeline's filed rate.
Table 2 — Interconnection Cost Allocation Comparison
Ridgeline's proposed cost allocation reflects an increase in Ridgeline's share from 34.1 percent to 40.0 percent (an increase of approximately $1.32 million) and a corresponding decrease in ATPC's share from 65.9 percent to 60.0 percent. This represents a movement of approximately 37.2 percent of the distance between Ridgeline's filed position and ATPC's preferred 50/50 split, demonstrating Ridgeline's willingness to compromise on this contested issue.
Ridgeline notes that its proposed settlement rate represents a significant concession from its filed position and reflects Ridgeline's recognition that a negotiated outcome providing benefits to all parties is preferable to the risks and uncertainties of litigation. While the settlement rate does not adopt the positions advocated by MGPC or any other party, it falls within the range of reasonableness defined by the parties' respective positions and provides a sound basis for further negotiation.
C. Impact on Ridgeline's Financial Position
Ridgeline acknowledges that the proposed settlement rate, while lower than Ridgeline's filed rate, has implications for Ridgeline's financial position and its ability to service its debt obligations and provide a reasonable return to its equity investors.
Ridgeline's capital structure includes the following principal financing arrangements:
• A $400 million senior secured term loan, with Pinnacle National Bank, N.A. serving as administrative agent. The lending syndicate includes Granite Trust Company and Lakeshore Capital Bank. The term loan bears interest at the Secured Overnight Financing Rate ("SOFR") plus 325 basis points.
• A $75 million revolving credit facility, also with Pinnacle National Bank, N.A. as administrative agent.
• $150 million in 7.875% Second Lien Notes, held by Harborview Capital Management LLC and Sentinel Ridge Fund LP.
• A $37.2 million equity contribution from DEH.
Ridgeline represents that the proposed settlement rate of $0.2100/Dth, while lower than the filed rate of $0.2265/Dth, remains sufficient to enable Ridgeline to service its senior secured and second lien debt obligations, to maintain compliance with the financial covenants contained in the credit facility agreement dated September 15, 2021, and to provide a reasonable return to its equity investor. Ridgeline has reviewed the regulatory covenants and coverage ratios contained in its credit facility agreement and has determined that the proposed settlement rate, when applied to projected throughput levels, generates revenues adequate to satisfy all covenant requirements.
Ridgeline notes that the credit facility agreement contains certain regulatory covenants that require Ridgeline to maintain Commission-approved rates at levels sufficient to achieve specified debt service coverage ratios. Ridgeline has assessed the impact of the proposed settlement rate on these coverage ratios and has concluded that the settlement rate, combined with the three-year moratorium period and the rate certainty provided by the settlement, supports a credit profile consistent with Ridgeline's existing financing arrangements.
VI. Proposed Settlement Procedures
A. Term Sheet and Definitive Agreement
This Version 1.0 constitutes a non-binding settlement offer intended to establish a framework for negotiations among the parties. Nothing in this Settlement Offer creates a binding obligation on Ridgeline or any other party, and no party shall be deemed to have agreed to any term proposed herein unless and until such agreement is reflected in a duly executed written agreement.
If the parties reach agreement in principle on the material terms of a settlement at or following the settlement conference, Ridgeline proposes the following steps for formalizing the agreement:
(a) Term Sheet. The parties would negotiate and execute a non-binding Term Sheet summarizing the principal terms of the settlement agreement. The Term Sheet would serve as the basis for drafting the definitive agreement.
(b) Stipulation and Agreement. Following execution of the Term Sheet, the parties would negotiate and finalize a Stipulation and Agreement that would constitute the definitive settlement agreement. The Stipulation and Agreement would be filed with the Commission for review and approval under 18 C.F.R. § 385.602.
(c) Supporting Materials. The Stipulation and Agreement, as filed with the Commission, would include as attachments or exhibits the settled rate schedules, the General Terms and Conditions of Ridgeline's FERC Gas Tariff as modified by the settlement, the Interconnection Agreement (to be filed as a rate schedule), and any other schedules, conditions, or supporting materials deemed appropriate by the parties and the Settlement Judge.
Ridgeline is prepared to take the lead in drafting the Term Sheet and the Stipulation and Agreement, subject to review and comment by all parties, and to work with Settlement Judge Margolis to ensure that the documentation process proceeds efficiently.
B. Settlement Conference Schedule
The first settlement conference has been scheduled for November 30, 2022, before Settlement Judge Margolis. Ridgeline respectfully requests that all parties come to the first conference prepared to discuss the terms proposed in this Settlement Offer and to identify areas of agreement and disagreement.
If meaningful progress is made at the first conference, Ridgeline proposes that additional settlement conferences be scheduled at approximately ninety (90) day intervals, or at such other intervals as the Settlement Judge and the parties deem appropriate. Ridgeline is amenable to more frequent conferences or informal discussions between conferences if the parties believe that more frequent engagement would be productive.
Ridgeline reserves all rights to proceed to hearing before ALJ Whitfield if a settlement is not reached within a reasonable time. Ridgeline's participation in the settlement process does not waive or diminish any of its rights in the hearing track, and Ridgeline will continue to prepare for hearing in parallel with the settlement discussions, consistent with Commission policy.
C. Relationship to Pending Testimony and Hearing Schedule
Ridgeline notes that its direct testimony of seven (7) witnesses is currently scheduled for filing on December 5, 2022. Ridgeline intends to file its direct testimony as scheduled, irrespective of the pendency of settlement discussions. The filing of direct testimony is not inconsistent with Ridgeline's good-faith participation in the settlement process and is required to preserve Ridgeline's litigation position in the event that settlement is not achieved.
The settlement track and the hearing track will proceed in parallel, as directed by the Commission's order of September 22, 2022, and consistent with the Commission's longstanding practice of maintaining dual tracks in rate proceedings to ensure that settlement discussions do not delay the hearing schedule or prejudice any party's right to a hearing. Settlement Judge Margolis and ALJ Whitfield will coordinate as necessary to ensure that the two tracks do not create scheduling conflicts or procedural complications for the parties.
VII. Conditions and Reservations
This Settlement Offer is submitted subject to the following conditions and reservations:
1. Without Prejudice. This Settlement Offer is made without prejudice to any of Ridgeline's filed positions, testimony, or arguments in the hearing track of these proceedings. Nothing in this Settlement Offer shall be construed as limiting, waiving, or modifying any position taken by Ridgeline in its application, its answer to the ATPC protest, or any testimony or exhibit that Ridgeline may file in the hearing track.
2. No Admission. Nothing in this Settlement Offer constitutes an admission by Ridgeline that its filed recourse rate of $0.2265/Dth, its proposed cost of service, its proposed ROE, its proposed capital structure, its proposed interconnection cost allocation, or any other aspect of its application is unjust, unreasonable, or otherwise deficient. Ridgeline continues to believe that its filed rate and cost of service are fully supportable and consistent with Commission precedent and policy.
3. Right to Withdraw or Modify. Ridgeline reserves the right to withdraw, modify, supplement, or supersede this Settlement Offer at any time prior to the execution of a definitive Stipulation and Agreement by all parties. This Settlement Offer shall automatically expire and be of no further force or effect upon the filing of a revised settlement offer (Version 2.0 or later) or upon written notice of withdrawal by Ridgeline to all parties and the Settlement Judge.
4. Rule 602 Protections. If settlement is not reached in these proceedings, this Settlement Offer, and all discussions, communications, and documents exchanged in connection with the settlement process, shall not be used by any party, FERC Trial Staff, the presiding ALJ, or the Commission in the hearing track or in any other proceeding, consistent with the protections afforded by Rule 602 of the Commission's Rules of Practice and Procedure, 18 C.F.R. § 385.602.
5. Contingent on Unanimous Acceptance and FERC Approval. This Settlement Offer, and any settlement agreement resulting from it, is expressly conditioned on acceptance by all parties of record, including ATPC, MGPC, CMGA, and FERC Trial Staff, and on approval by the Commission. If any party declines to join the settlement, or if the Commission declines to approve the settlement or approves it subject to conditions unacceptable to Ridgeline, Ridgeline reserves the right to withdraw from the settlement and to proceed to hearing on the full record.
VIII. Conclusion and Contact Information
Ridgeline respectfully urges all parties to engage constructively and in good faith at the settlement conference scheduled for November 30, 2022, before Settlement Judge Margolis. Ridgeline believes that the terms proposed in this Settlement Offer provide a reasonable and balanced framework for resolving the contested issues in these proceedings and that a negotiated settlement will serve the interests of all stakeholders, including shippers, producers, the interconnecting pipeline, the municipal gas authority, and the public at large.
Ridgeline is committed to reaching a fair and reasonable resolution of these proceedings and welcomes the opportunity to discuss the settlement terms proposed herein with all parties. Ridgeline's representatives are available to meet with the parties, individually or collectively, in advance of the settlement conference to discuss any questions or concerns regarding this Settlement Offer.
All communications regarding this Settlement Offer should be directed to the following persons:
George Trujillo, Responsible Partner Calderwood & Harkness LLP 1601 K Street NW, Suite 900 Washington, DC 20006 Telephone: (202) 555-7400
Email: gtrujillo@calderwoodharkness.com
Brett Callahan, Lead Associate Calderwood & Harkness LLP 1601 K Street NW, Suite 900 Washington, DC 20006 Telephone: (202) 555-7425
Email: bcallahan@calderwoodharkness.com
Dr. Natasha Orlov, Director of Rates & Regulatory Ridgeline Midstream Services LLC 700 Kanawha Boulevard East, Suite 1400 Charleston, WV 25301 Telephone: (304) 555-2100
Email: norlov@ridgelinemidstream.com
Remainder of page intentionally left blank.
RESPECTFULLY SUBMITTED,
RIDGELINE MIDSTREAM SERVICES LLC
By its attorneys,