PRIVILEGED AND CONFIDENTIAL — SETTLEMENT COMMUNICATION
SUBJECT TO FERC RULE 602 AND FRE 408 PROTECTIONS
RIDGELINE MIDSTREAM SERVICES LLC Revised Settlement Proposal (Version 2.0)
FERC Docket Nos. RP22-847-000 (Rate Case) and RP22-847-001 (Interconnection)
October 15, 2023
Prepared by: Calderwood & Harkness LLP 1601 K Street NW, Suite 900 Washington, DC 20006 C&H Matter No. 1016-00005
Submitted on behalf of: Ridgeline Midstream Services LLC 700 Kanawha Boulevard East, Suite 1400 Charleston, WV 25301
Addressed to:
The Honorable Howard Margolis Settlement Judge Federal Energy Regulatory Commission 888 First Street NE Washington, DC 20426
Copies to:
William Pratt, Esq. Kellner, Royce & Dillard LLP One PPG Place, Suite 2800 Pittsburgh, PA 15222 Counsel for Appalachian Trunk Pipeline Company, LLC
Rebekah Montague, Esq. Whitmore & Sable LLP 1200 New Hampshire Avenue NW, Suite 600 Washington, DC 20036 Counsel for Mountainside Gas Producers Coalition
Stephen Greer, Esq. Fordham Municipal Law Group PC 312 Adams Avenue, Suite 100 Scranton, PA 18503 Counsel for Clearwater Municipal Gas Authority
Jonathan Briggs, Esq. Lead Trial Attorney Office of the General Counsel Federal Energy Regulatory Commission 888 First Street NE Washington, DC 20426 FERC Trial Staff
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I. INTRODUCTION AND PURPOSE
Ridgeline Midstream Services LLC ("Ridgeline" or "Applicant") hereby submits this Revised Settlement Proposal, designated Version 2.0, in the above-captioned proceedings before the Federal Energy Regulatory Commission ("FERC" or "Commission"). This Version 2.0 supersedes and replaces in its entirety the Version 1.0 settlement proposal circulated by Ridgeline on November 30, 2022, during the first settlement conference convened by Settlement Judge Howard Margolis.
Ridgeline is a limited liability company organized under the laws of the State of Delaware. Ridgeline is the sole operating subsidiary of Dunmore Energy Holdings Ltd. ("DEH"), a Cayman Islands exempted limited company registered under Cayman Registry No. CR-381204. DEH holds one hundred percent of the membership interests in Ridgeline, and Ridgeline operates as a standalone entity with its principal executive offices located at 700 Kanawha Boulevard East, Suite 1400, Charleston, West Virginia 25301.
Ridgeline owns and operates the Ridgeline Pipeline System (the "System"), a 187-mile, 24-inch-diameter high-pressure natural gas pipeline extending from the Wetzel County Interconnect in Wetzel County, West Virginia, to the Waynesburg Compressor Station in Greene County, Pennsylvania. The System has a design capacity of 1.2 billion cubic feet per day ("Bcf/d"), equivalent to 1,200,000 decatherms per day ("Dth/d"), and current throughput of approximately 680 million cubic feet per day ("MMcf/d"), representing approximately 56.67% utilization. The System is supported by three compressor stations — the Wetzel Station, the Mannington Station, and the Waynesburg Station — with aggregate installed compression of 45,000 horsepower ("HP"). The System was placed in service on October 1, 2021.
This revised proposal reflects the significant developments that have occurred in this proceeding since the circulation of Version 1.0, including, without limitation, the following:
(a) The January 19, 2023 Deficiency Letter issued by the Commission's Office of Energy Market Regulation ("OEMR"), which identified fourteen (14) deficiency items requiring correction or supplementation in Ridgeline's original tariff filing;
(b) Administrative Law Judge Clara Whitfield's February 6, 2023 order staying the Track II procedural schedule pending Ridgeline's response to the Deficiency Letter;
(c) Ridgeline's March 15, 2023 partial response to the Deficiency Letter, in which Ridgeline addressed eight (8) of the fourteen (14) identified deficiency items (Items 1 through 4 and Items 7 through 10);
(d) The engagement on April 15, 2023 of Braswell Energy Consulting Group LLC ("Braswell" or "BEC"), under engagement number BEC-2023-0041, led by Dr. Raymond Braswell, a former FERC economist, to perform a comprehensive tariff redesign of the Ridgeline FERC Gas Tariff, Original Volume No. 1;
(e) ALJ Whitfield's May 10, 2023 order granting Ridgeline's first 120-day extension of the deadline to complete its deficiency response and supplemental filings, establishing a revised deadline of August 28, 2023;
(f) ALJ Whitfield's September 8, 2023 order granting Ridgeline's second extension request, this time for a period of 180 days, establishing a revised deadline of February 23, 2024, and designating the proceeding as "dormant" pending further filings;
(g) The third settlement conference held on July 12, 2023, before Settlement Judge Margolis, at which the parties exchanged preliminary views on revised settlement parameters; and
(h) The preliminary findings from the ongoing comprehensive tariff redesign being conducted by Braswell under engagement BEC-2023-0041, which have informed the revised terms set forth in this proposal.
In light of these developments, and in the interest of advancing a negotiated resolution of the outstanding disputes in this proceeding, Ridgeline offers material concessions in this Version 2.0 settlement proposal that are designed to narrow the gap between the parties' respective positions and to facilitate a comprehensive settlement. These concessions, described in greater detail in Sections III and IV below, include a reduction in Ridgeline's proposed return on equity from 14.00% to 13.00%, a concession on the load factor assumption from 100% to 85%, and an adjustment to the proposed interconnection facilities cost allocation from 34.1%/65.9% (Ridgeline/ATPC) to 40%/60% (Ridgeline/ATPC).
Ridgeline submits this proposal consistent with the Commission's longstanding and well-established preference for the negotiated resolution of contested proceedings through settlement. As the Commission has repeatedly observed, settlements conserve public and private resources, reduce uncertainty for all participants, and promote the efficient administration of the Natural Gas Act. Ridgeline remains committed to engaging in good-faith negotiations with all parties and with FERC Trial Staff to achieve a just and reasonable outcome.
Pursuant to Rule 602 of the Commission's Rules of Practice and Procedure, 18 C.F.R. § 385.602, all terms, proposals, concessions, and statements contained in this settlement offer are presented solely for settlement purposes and are without prejudice to any position that Ridgeline may take in any contested proceeding. This document, and all discussions related thereto, are inadmissible in any evidentiary hearing or contested proceeding before the Commission or any court. The protections of Federal Rule of Evidence 408 are also invoked.
II. PROCEDURAL BACKGROUND
A. Filing History
On May 12, 2022, Ridgeline filed with the Commission its application for an initial tariff rate and interconnection authorization pursuant to Sections 4 and 7 of the Natural Gas Act ("NGA"), 15 U.S.C. §§ 717c and 717f, and the Commission's regulations at 18 C.F.R. Parts 154, 157, and 284. The application proposed the establishment of Ridgeline's FERC Gas Tariff, Original Volume No. 1, and was assigned FERC Code 960442.
Ridgeline's initial filing proposed a recourse rate of $0.2265 per decatherm ("Dth"), consisting of a reservation component of $0.2223/Dth and a usage component of $0.0042/Dth. The proposed rate was derived from a total cost of service of $97.36 million and a rate base of $612.40 million. Ridgeline proposed a return on equity ("ROE") of 14.00%, supported by a discounted cash flow ("DCF") proxy group analysis performed as of the filing date. The proposed capital structure consisted of 55% equity and 45% debt, with a weighted average cost of debt of 5.25%, producing a weighted average cost of capital ("WACC") of 10.0625%.
The filing also sought interconnection authorization for a new physical interconnection between the Ridgeline Pipeline System and the pipeline system operated by Appalachian Trunk Pipeline Company, LLC ("ATPC"), FERC Code 840117. ATPC operates a 640-mile interstate natural gas pipeline system with approximately 3.8 Bcf/d of certificated capacity. The proposed interconnection, designated the Wetzel County Interconnect, would be located at milepost 0.0 of the Ridgeline System and would tie into ATPC's existing 30-inch mainline at ATPC Milepost 412.6.
B. Interventions and Protests
On June 14, 2022, the Commission issued a Notice of Filing in this proceeding, establishing an intervention deadline of August 15, 2022. Three entities filed motions to intervene, and one filed a protest in addition to its motion to intervene:
Mountainside Gas Producers Coalition. On July 28, 2022, the Mountainside Gas Producers Coalition ("MGPC") filed a motion to intervene in this proceeding. MGPC is a coalition of fourteen (14) independent natural gas producers operating in the Marcellus and Utica shale formations across West Virginia, Pennsylvania, and Ohio, under the direction of Calvin Dreyer, Executive Director. MGPC stated that it generally supports the proposed interconnection between Ridgeline and ATPC, which MGPC views as beneficial to producer access to downstream markets. However, MGPC opposed Ridgeline's proposed recourse rate as excessive and advocated for a rate ceiling of approximately $0.2560/Dth, which MGPC contends better reflects the cost of comparable pipeline service in the region. MGPC retained Dr. Eleanor Vasquez as its rate expert to provide independent analysis of Ridgeline's proposed cost of service and rate design.
Clearwater Municipal Gas Authority. On August 1, 2022, the Clearwater Municipal Gas Authority ("CMGA") filed a motion to intervene. CMGA is a municipal gas distribution authority organized under the laws of the Commonwealth of Pennsylvania, led by General Manager Dennis Ott. CMGA is a shipper on the ATPC system and expressed concern regarding the potential for the proposed Ridgeline-ATPC interconnection to result in increased rates for ATPC system shippers, particularly to the extent that interconnection facility costs are allocated to ATPC's existing cost of service. CMGA stated that it supports ATPC's position on cost allocation and opposes any allocation methodology that would shift a disproportionate share of interconnection costs to existing ATPC shippers.
Appalachian Trunk Pipeline Company, LLC. On August 15, 2022, ATPC filed a combined protest and motion to intervene. ATPC is a Delaware limited liability company, with Marcus R. Alderman serving as Chief Executive Officer and Sandra K. Fenton serving as Vice President of Regulatory Affairs. ATPC is a subsidiary of Tidewater Infrastructure Partners LP, of which Harrison J. Alderman is Chairman. ATPC's protest opposed Ridgeline's proposed metering station design at the Wetzel County Interconnect and, more significantly, challenged Ridgeline's proposed allocation of $14.7 million — representing 65.9% of the total estimated interconnection facilities cost of $22.3 million — to ATPC shippers. ATPC contended that the proposed allocation lacked cost-causation support and advocated for a 50/50 allocation of interconnection costs between Ridgeline and ATPC. ATPC is represented in this proceeding by William Pratt of Kellner, Royce & Dillard LLP, One PPG Place, Suite 2800, Pittsburgh, Pennsylvania 15222.
On September 22, 2022, the Commission issued an order granting all three motions to intervene and all parties were admitted as full participants in the proceeding. The Commission established a Track II procedural schedule for the rate case proceeding and appointed Settlement Judge Howard Margolis to oversee settlement discussions.
C. Pre-Hearing Proceedings
The pre-hearing phase of this proceeding was active and productive, though it ultimately did not result in a settlement or a resolution of the outstanding deficiency items. The key milestones were as follows:
On October 17, 2022, Ridgeline filed its answer to ATPC's protest, responding to each of ATPC's substantive objections regarding interconnection cost allocation and metering station design. Ridgeline maintained that the proposed 34.1%/65.9% allocation was supported by cost-causation analysis reflecting the disproportionate benefit that ATPC and its shippers would derive from access to additional Marcellus production volumes through the Ridgeline System.
On November 14, 2022, ALJ Clara Whitfield was appointed as the presiding Administrative Law Judge for the contested case proceeding. ALJ Whitfield held a prehearing conference on the same date, at which the parties discussed the procedural schedule, discovery, and the potential for settlement.
On November 30, 2022, the first settlement conference was convened before Settlement Judge Margolis. At that conference, Ridgeline circulated its initial settlement offer, designated Version 1.0. The Version 1.0 proposal offered rates consistent with the originally filed tariff — $0.2265/Dth at a 14.00% ROE and 100% load factor — and proposed the same interconnection cost allocation of 34.1%/65.9%. The intervenors expressed the view that the Version 1.0 proposal did not offer sufficient concessions to warrant further negotiation, and the conference adjourned without agreement.
On December 5, 2022, Ridgeline filed the direct testimony of seven (7) witnesses in support of its application:
(i) James K. Winfield, Chief Executive Officer and President of Ridgeline, addressing corporate structure, business purpose, and system overview;
(ii) Angela Moretti, Vice President of Engineering, addressing pipeline design, construction costs, compressor station specifications, and system capacity;
(iii) Thomas Greaves, Vice President of Finance, addressing capital structure, debt instruments, and cost of capital;
(iv) Dr. Natasha Orlov, Director of Rates & Regulatory, addressing cost of service, rate design, and tariff structure;
(v) Dr. Raymond Braswell, of Braswell Energy Consulting Group LLC, addressing the DCF proxy group analysis and return on equity;
(vi) two additional expert witnesses addressing gas quality specifications and SCADA/metering system design at the proposed interconnection.
On January 9, 2023, ATPC, MGPC, and CMGA filed answering testimony in response to Ridgeline's direct case. ATPC's testimony focused on interconnection cost allocation and metering station design issues, while MGPC's testimony, including the expert testimony of Dr. Eleanor Vasquez, challenged Ridgeline's proposed ROE and cost of service components. CMGA's testimony supported ATPC's position and addressed potential rate impacts on existing ATPC shippers.
On March 8, 2023, a second settlement conference was convened before Settlement Judge Margolis. The parties exchanged updated positions and identified areas of potential compromise, but no settlement was reached. The parties agreed to continue discussions.
D. Deficiency Letter and Subsequent Proceedings
On January 19, 2023, the Commission's Office of Energy Market Regulation issued a Deficiency Letter (the "Deficiency Letter") identifying fourteen (14) items in Ridgeline's original tariff filing that required correction, supplementation, or additional explanation. The Deficiency Letter addressed a range of issues spanning cost of service methodology, tariff provisions, and interconnection agreement structure.
On February 6, 2023, ALJ Whitfield issued an order staying the Track II procedural schedule pending Ridgeline's response to the Deficiency Letter. The stay order recognized that resolution of the deficiency items was necessary before the contested case proceeding could meaningfully advance, and that a comprehensive response might require significant time and resources.
On March 15, 2023, Ridgeline filed a partial response to the Deficiency Letter, addressing eight (8) of the fourteen (14) identified items — specifically, Items 1 through 4 and Items 7 through 10. As described in greater detail in Section VI below, the partial response addressed issues including updated ROE support, fuel, lost and unaccounted-for gas ("FL&U") tracker mechanisms, interruptible transportation rate derivation, load factor justification, electronic bulletin board posting requirements, shipper-must-have-title provisions, interconnection agreement filing format, and penalty revenue crediting.
On April 15, 2023, Ridgeline engaged Braswell Energy Consulting Group LLC to perform a comprehensive tariff redesign of Ridgeline's FERC Gas Tariff, Original Volume No. 1. The engagement, assigned number BEC-2023-0041, is led by Dr. Raymond Braswell, a former FERC economist who had previously served as a testifying witness in this proceeding. The scope of the engagement encompasses the resolution of all fourteen deficiency items, updated cost of service analysis, rate redesign, and development of comprehensive tariff language.
On April 28, 2023, Ridgeline filed a motion requesting a 120-day extension of the deadline to complete its deficiency response and supplemental filings, citing the scope of the Braswell engagement and the need for sufficient time to develop comprehensive tariff revisions. The motion was granted by ALJ Whitfield on May 10, 2023, establishing a revised deadline of August 28, 2023.
On July 12, 2023, a third settlement conference was convened before Settlement Judge Margolis. The parties discussed preliminary findings from the Braswell tariff redesign and explored potential areas of compromise. While no settlement was reached, the conference was productive and resulted in a clearer understanding of each party's priorities and constraints.
On August 25, 2023, Ridgeline filed a second motion for extension of time, requesting an additional 180 days to complete the tariff redesign and remaining deficiency items. The motion was supported by a declaration from Dr. Raymond Braswell describing the complexity and scope of the redesign effort. On September 8, 2023, ALJ Whitfield granted the requested extension, establishing a revised deadline of February 23, 2024, and designating the proceeding as "dormant" pending further filings or settlement activity.
E. Current Status
As of the date of this submission, the comprehensive tariff redesign is in progress under Braswell engagement BEC-2023-0041. Six (6) deficiency items remain unaddressed — Items 5, 6, 11, 12, 13, and 14 — covering capacity release provisions, NAESB WGQ Version 3.2 compliance, creditworthiness provisions, segmentation and flexible receipt/delivery point provisions, greenhouse gas emission cost recovery, and Order No. 2222 distributed energy resource ("DER") aggregation implications. The procedural schedule remains stayed, and the proceeding retains its "dormant" designation. The current deadline for Ridgeline's supplemental filing is February 23, 2024.
Ridgeline submits this revised settlement offer to reflect the preliminary parameters identified through the ongoing tariff redesign process and to offer material concessions in a good-faith effort to narrow the range of disputed issues and facilitate a comprehensive settlement of this proceeding.
III. SUMMARY OF CONCESSIONS IN VERSION 2.0
A. Overview of Changes from Version 1.0
The following table summarizes the material movements from the Version 1.0 settlement proposal (circulated November 30, 2022) to this Version 2.0 proposal:
As the table illustrates, Ridgeline has made concessions on three of the most significant disputed issues in this proceeding. These concessions are discussed in detail below.
B. Rationale for Concessions
Return on Equity Reduction (14.00% to 13.00%). Ridgeline's movement from a 14.00% to a 13.00% proposed ROE reflects several considerations. First, the Deficiency Letter's Item 1 required Ridgeline to provide updated proxy group analysis supporting its proposed return on equity. Ridgeline's originally filed DCF analysis utilized a proxy group assembled during 2021, and OEMR correctly noted that market conditions had evolved significantly since that time. Preliminary analysis performed by Dr. Braswell as part of the comprehensive tariff redesign suggests that the market-indicated ROE for midstream natural gas pipelines has declined from levels prevailing during the original proxy group analysis period. The reduction to 13.00% represents an interim concession by Ridgeline for settlement purposes, and Ridgeline expressly reserves the right to further refine its ROE proposal through the full tariff redesign process, including the potential for a revised proxy group analysis.
Ridgeline acknowledges that its 13.00% ROE proposal remains above the positions advanced by the intervenors. ATPC has proposed an ROE of 10.75%, while MGPC has proposed an ROE of 11.25%. Ridgeline's concession to 13.00% represents a meaningful movement of 100 basis points, but Ridgeline does not accept that a just and reasonable ROE for a recently constructed, single-system midstream pipeline with the risk profile of Ridgeline's operations falls at or below 12.00%. Based on the preliminary findings of the Braswell analysis, including consideration of Ridgeline's project-specific risks, limited operating history, and concentrated customer base, Ridgeline maintains that the downward endpoint of a just and reasonable ROE for Ridgeline exceeds 12.00%.
Load Factor Concession (100% to 85%). Ridgeline's Version 1.0 proposal utilized a 100% load factor assumption in deriving its billing determinants — that is, the proposed rate was calculated on the assumption that the full design capacity of 1,200,000 Dth/d would be subscribed and billed 365 days per year. The Deficiency Letter's Item 4 challenged this assumption, noting that a 100% load factor is not commonly used in pipeline rate design proceedings and requesting additional justification. In this Version 2.0 proposal, Ridgeline concedes to an 85% load factor assumption for purposes of calculating billing determinants.
The 85% load factor aligns with the positions advocated by ATPC and MGPC in their respective filings and testimony. Ridgeline acknowledges that an 85% load factor is more commonly applied in FERC pipeline rate proceedings. Ridgeline notes, however, that the load factor assumption used for billing determinant purposes is a design and regulatory policy question — it reflects the expected level of firm subscription and utilization for rate design purposes, rather than a measure of actual physical throughput. The System's current throughput of approximately 680 MMcf/d, representing 56.67% utilization, reflects the System's current ramp-up phase and the ongoing development of production in the served area. It should not be conflated with the load factor assumption used in rate design.
Ridgeline further notes that while it concedes to 85% for settlement purposes, the preliminary Braswell redesign contemplates a 75% load factor, which Ridgeline believes is more reflective of the expected long-term utilization profile of the System. The 85% figure thus represents a meaningful compromise — above Braswell's preliminary recommendation but consistent with intervenor expectations.
Interconnection Cost Allocation (34.1%/65.9% to 40%/60%). Ridgeline's Version 1.0 proposal maintained the originally filed interconnection cost allocation of 34.1% (Ridgeline) / 65.9% (ATPC), allocating approximately $7.6 million to Ridgeline and approximately $14.7 million to ATPC out of total estimated interconnection facilities costs of $22.3 million. In this Version 2.0 proposal, Ridgeline moves to a 40%/60% allocation — Ridgeline's share increases to approximately $8.92 million, while ATPC's share decreases to approximately $13.38 million.
This concession represents a partial movement toward ATPC's 50%/50% counterproposal, which was set forth in ATPC's August 15, 2022 protest filing and reiterated in the January 2023 letter from Kellner, Royce & Dillard LLP to Calderwood & Harkness LLP. Ridgeline's willingness to absorb an additional $1.32 million in interconnection costs (from $7.6 million to $8.92 million) reflects Ridgeline's recognition of the shared benefits of the interconnection and its desire to narrow this dispute. However, Ridgeline continues to maintain that a 50%/50% allocation is not supported by cost-causation principles, as articulated in FERC Order No. 2004 and its progeny, because the anticipated capacity utilization at the interconnect is not symmetric between the two systems.
IV. REVISED SETTLEMENT RATE DERIVATION
This section sets forth the derivation of Ridgeline's proposed settlement recourse rate under the revised parameters offered in this Version 2.0 proposal. The calculations presented below are based on the originally filed rate base and test-year operating expenses, adjusted for the revised cost of capital parameters offered herein. Ridgeline notes that these calculations are preliminary and subject to final reconciliation upon completion of the comprehensive tariff redesign.
A. Rate Base
Ridgeline's total rate base remains $612.40 million, as filed in its original May 12, 2022 application. The rate base components are as follows:
Net Plant in Service: $563.71 million, consisting of original construction cost of $587.20 million, less accumulated depreciation of $23.49 million calculated at a 2.5% annual straight-line depreciation rate applied from the October 1, 2021 in-service date through the end of the test year.
Working Capital Allowance: $18.64 million, calculated using the Commission's standard formula of one-eighth (1/8) of the sum of operations and maintenance ("O&M") expenses and administrative and general ("A&G") expenses.
Accumulated Deferred Income Taxes (ADIT): ($12.45 million), reducing rate base in accordance with FERC accounting requirements and normalization provisions.
Other Rate Base Items: $42.50 million, consisting of gas stored underground, prepayments, and materials and supplies inventories.
Reconciliation:
$563.71M + $18.64M − $12.45M + $42.50M = $612.40 million
Ridgeline notes that the rate base may be subject to further adjustment in the final redesigned tariff filing to reflect updated depreciation accruals and ADIT balances as of a more current test year. For purposes of this settlement offer, however, Ridgeline proposes the use of the originally filed rate base of $612.40 million.
B. Cost of Capital
The revised cost of capital parameters for this Version 2.0 proposal are as follows:
Return on Equity (ROE): 13.00%, reduced from 14.00% in Version 1.0 and the original filing. This reduction is offered as a settlement concession as described in Section III.B above.
Capital Structure: 55% equity / 45% debt, unchanged from the original filing and Version 1.0. This capital structure reflects Ridgeline's actual capitalization as of the test year.
Cost of Debt: 5.25%, unchanged from the original filing and Version 1.0. The cost of debt represents the weighted average cost of Ridgeline's two outstanding debt instruments: (i) a $400 million Senior Secured Term Loan led by Pinnacle National Bank, N.A., as Administrative Agent, bearing interest at the Secured Overnight Financing Rate ("SOFR") plus 325 basis points; and (ii) $150 million in 7.875% Second Lien Senior Secured Notes due 2030, held by Harborview Capital Management LLC and Sentinel Ridge Fund LP.
Revised Weighted Average Cost of Capital:
WACC = (Equity Weight × ROE) + (Debt Weight × Cost of Debt)
WACC = (0.55 × 13.00%) + (0.45 × 5.25%)
WACC = 7.15% + 2.3625%
WACC = 9.5125%
Revised Return on Rate Base:
Return = Rate Base × WACC
Return = $612.40M × 9.5125%
Return = approximately $58.24 million
C. Cost of Service Components
Based on the revised cost of capital parameters and the originally filed test-year operating expenses, the estimated total cost of service under this Version 2.0 proposal is as follows:
The income tax allowance has been recalculated to reflect the revised 13.00% ROE. The effective combined tax rate applied for gross-up purposes is approximately 26.13%, consisting of the 21% federal corporate income tax rate and the 6.5% West Virginia corporate net income tax rate applicable to Ridgeline's operations.
Ridgeline notes that the estimated total cost of service of approximately $93.38 million differs from both the originally filed cost of service of $97.36 million and the preliminary cost of service figure of $103.15 million developed through the ongoing Braswell tariff redesign. These differences arise because: (i) the settlement cost of service uses the revised 13.00% ROE (versus 14.00% as originally filed), reducing the return on rate base and associated income tax allowance; and (ii) the Braswell preliminary redesign figure of $103.15 million reflects updated operating expenses, additional cost items, and other tariff redesign modifications that are not yet incorporated into this settlement proposal. The settlement cost of service presented here uses original test-year operating expenses in combination with the revised cost of capital parameters.
All figures are subject to final reconciliation and verification.
D. Billing Determinants
The billing determinants under this Version 2.0 proposal are calculated as follows:
Design Capacity: 1,200,000 Dth/d
Proposed Settlement Load Factor: 85%
Annual Billing Determinants: 1,200,000 Dth/d × 365 days × 0.85 = 372,300,000 Dth/yr
By comparison, Version 1.0 utilized a 100% load factor, yielding annual billing determinants of 438,000,000 Dth/yr (1,200,000 × 365 × 1.00). The Braswell preliminary redesign contemplates a 75% load factor, which would yield annual billing determinants of 328,500,000 Dth/yr (1,200,000 × 365 × 0.75). The 85% load factor proposed in this Version 2.0 represents the level advocated by both ATPC and MGPC in their respective filings and testimony, and Ridgeline offers this concession in the interest of settlement.
E. Proposed Settlement Recourse Rate
Based on the foregoing, the proposed settlement recourse rate is derived as follows:
Settlement Rate = Total COS ÷ Annual Billing Determinants
Settlement Rate = ~$93.38M ÷ 372,300,000 Dth/yr
Settlement Rate ≈ $0.2509/Dth (total)
The proposed rate would be allocated between reservation and usage components using the standard modified fixed-variable ("MFV") methodology in accordance with Commission policy. On a preliminary basis, the rate split is estimated at approximately $0.2470/Dth reservation and $0.0039/Dth usage. The precise allocation between reservation and usage components will be determined through the tariff redesign process and reflected in the final rate schedules.
Comparison to Party Positions. The following comparison demonstrates that the proposed settlement rate falls within the range of outcomes contemplated by the parties:
• Ridgeline's Original Filing: $0.2265/Dth (100% load factor, 14.00% ROE)
• MGPC/ATPC Settlement Ceiling: approximately $0.2560/Dth
• Ridgeline's Preliminary Redesign Rate (Braswell): $0.3140/Dth (75% load factor, 12.50% ROE)
• This Version 2.0 Settlement Rate: approximately $0.2509/Dth (85% load factor, 13.00% ROE)
The Version 2.0 settlement rate of approximately $0.2509/Dth is within the range proposed by MGPC and ATPC, and is significantly below the rate that would result from the parameters being developed through the comprehensive tariff redesign. The gap between the Version 2.0 proposal and the intervenor ceiling is approximately $0.005/Dth — a difference that Ridgeline believes can be bridged through good-faith negotiation on the remaining disputed cost-of-service components, principally ROE.
Ridgeline notes that this offer represents a substantial good-faith concession. While the headline rate of $0.2509/Dth is higher than the originally filed rate of $0.2265/Dth (due to the lower 85% load factor, which reduces billing determinants and thus increases the per-unit rate), the underlying cost of service has been reduced by approximately $4.0 million relative to the original filing, reflecting the ROE concession and associated income tax reductions. The rate increase from $0.2265/Dth to $0.2509/Dth is entirely a function of the load factor concession, which Ridgeline has made in direct response to intervenor concerns and the Deficiency Letter.
V. INTERCONNECTION TERMS
A. Interconnection Facilities Overview
The proposed Ridgeline-ATPC interconnection would be located at the Wetzel County Interconnect, consisting of a new meter station and pig launcher/receiver facility at milepost 0.0 of the Ridgeline Pipeline System. The interconnection would tie into ATPC's existing 30-inch mainline at ATPC Milepost 412.6, providing a direct physical connection between the two interstate natural gas pipeline systems.
The total estimated cost of interconnection facilities is $22.3 million. The interconnection facilities include the following principal components:
• Metering Equipment: Ultrasonic flow meters in a three-run, 12-inch configuration, gas chromatographs for gas quality analysis, and SCADA integration equipment for remote monitoring and data transmission;
• Pig Launcher/Receiver: A bidirectional pig launcher and receiver facility to support pipeline inspection, cleaning, and maintenance operations on both the Ridgeline and ATPC systems adjacent to the interconnection point;
• Valving and Piping: Interconnection piping, mainline valves, bypass valves, and associated civil and structural works; and
• Control Systems: Telemetry, flow computers, and communications infrastructure integrated with both the Ridgeline and ATPC SCADA systems.
The design capacity at the interconnection point is 800 MMcf/d bidirectional, expandable to 1.2 Bcf/d with additional metering runs and associated modifications.
B. Revised Cost Allocation Proposal
The allocation of interconnection facilities costs between Ridgeline and ATPC has been a central point of dispute in this proceeding. The parties' respective positions, including Ridgeline's revised proposal, are summarized below:
Version 1.0 Proposal (November 2022): 34.1% Ridgeline ($7.60 million) / 65.9% ATPC ($14.70 million)
ATPC Counterproposal (per August 2022 protest and January 2023 KRD letter): 50.0% Ridgeline ($11.15 million) / 50.0% ATPC ($11.15 million)
Version 2.0 Proposal (this filing): 40.0% Ridgeline / 60.0% ATPC
Under the Version 2.0 proposal:
• Ridgeline's Share: $22.3M × 40.0% = $8.92 million
• ATPC's Share: $22.3M × 60.0% = $13.38 million
The rationale for the revised allocation rests on cost-causation principles. Ridgeline's original cost-causation analysis supported an allocation proportional to each party's anticipated capacity utilization at the interconnection point. That analysis indicated that ATPC and its shippers would derive a greater proportional benefit from the interconnection, as the interconnection would provide ATPC shippers with access to incremental Marcellus and Utica production volumes transported on the Ridgeline System. Ridgeline's movement from 34.1% to 40.0% reflects Ridgeline's recognition of the shared benefits flowing from the interconnection and its desire to narrow the dispute with ATPC. However, Ridgeline continues to maintain that a 50/50 allocation, as proposed by ATPC, is not supported by cost-causation principles as articulated in FERC Order No. 2004 and its progeny, because the anticipated capacity utilization at the interconnect is not symmetric between the two systems.
Ridgeline's concession increases its share of interconnection costs by approximately $1.32 million (from $7.60 million to $8.92 million) and correspondingly reduces ATPC's share by the same amount (from $14.70 million to $13.38 million).
C. Metering Station Design
Ridgeline proposes to maintain the ultrasonic flow meter configuration (three runs, 12-inch) as proposed in the November 2022 counterproposal to Kellner, Royce & Dillard LLP. This metering configuration is consistent with FERC and American Gas Association ("AGA") measurement standards and provides the accuracy and redundancy required for custody transfer metering at a major interconnection point.
Ridgeline acknowledges that ATPC has raised concerns regarding certain aspects of the metering station design, including gas chromatograph specifications and SCADA integration protocols. Ridgeline is willing to consider additional modifications to these specifications in the context of settlement negotiations. Ridgeline notes that a constructive technical exchange occurred in December 2022 between Brett Callahan of Calderwood & Harkness LLP and William Pratt of Kellner, Royce & Dillard LLP, in which the parties discussed potential modifications to gas chromatograph sampling intervals, response times, and data reporting formats. Ridgeline remains prepared to continue these technical discussions.
The specifications for the pig launcher/receiver facility remain subject to negotiation between Ridgeline and ATPC, and Ridgeline is open to reasonable accommodation of ATPC's operational requirements.
D. Interconnection Agreement Filing
Consistent with Deficiency Item 9 of the OEMR Deficiency Letter, Ridgeline proposes that the final Interconnection Agreement between Ridgeline and ATPC be filed with the Commission as a FERC rate schedule. This approach is reflected in Draft Interconnection Agreement Version 3.0, which was prepared in April 2023 and shared with ATPC's counsel. The Draft Interconnection Agreement addresses interconnection facilities ownership and maintenance responsibilities, metering procedures and calibration standards, gas quality specifications, operational balancing provisions, and allocation of facility costs consistent with the settlement.
Ridgeline proposes that the agreed-upon interconnection terms be incorporated as an appendix to the comprehensive settlement agreement, such that the interconnection provisions would be approved by the Commission as part of the overall settlement package.
E. Target In-Service Date
The original target in-service date for the Wetzel County Interconnect was the fourth quarter of 2023. Given the passage of that target date and the current status of the proceeding, Ridgeline proposes a revised target in-service date of eighteen (18) months following the date of FERC approval of the settlement or, in the event no settlement is reached, the date of a final Commission order in the contested case proceeding. This timeline is intended to allow adequate time for final engineering, equipment procurement, construction, testing, and commissioning of the interconnection facilities.
VI. TARIFF MODIFICATIONS INCORPORATED IN SETTLEMENT PROPOSAL
A. Deficiency Items Already Addressed
In its March 15, 2023 partial response to the Deficiency Letter, Ridgeline addressed eight (8) of the fourteen (14) deficiency items identified by OEMR. A summary of the status of each addressed item is provided below:
Item 1 — Updated ROE Support. The Deficiency Letter required Ridgeline to provide an updated DCF proxy group analysis supporting its proposed ROE, reflecting current market conditions rather than the 2021 proxy group data originally filed. In its March 2023 partial response, Ridgeline provided a preliminary update to its proxy group analysis. The full and comprehensive DCF proxy group analysis will be filed as part of the redesigned tariff. For purposes of this settlement offer, Ridgeline proposes a reduced ROE of 13.00% as described herein.
Item 2 — FL&U Tracker Mechanism. The Deficiency Letter required Ridgeline to include a fuel, lost, and unaccounted-for gas ("FL&U") tracker mechanism in its tariff to provide for periodic adjustment of the FL&U retention rate. In its partial response, Ridgeline presented a framework for the FL&U tracker mechanism. Detailed tariff language implementing the framework is under development as part of the comprehensive tariff redesign.
Item 3 — Interruptible Transportation (IT) Rate Derivation. The Deficiency Letter required additional explanation and justification of the proposed interruptible transportation ("IT") rate under Rate Schedule IT-1. In its partial response, Ridgeline presented a framework for the IT rate derivation consistent with Commission policy requiring that IT rates be set at levels that do not subsidize firm service. Detailed tariff language is under development.
Item 4 — Load Factor Justification. The Deficiency Letter challenged Ridgeline's use of a 100% load factor assumption in deriving its billing determinants. This issue is addressed directly by Ridgeline's concession in this Version 2.0 proposal to an 85% load factor for settlement purposes.
Item 7 — Electronic Bulletin Board (EBB) Posting Requirements. The Deficiency Letter required Ridgeline to include tariff provisions addressing EBB posting requirements consistent with Commission regulations and NAESB standards. Draft tariff language has been prepared and was included in the partial response.
Item 8 — Shipper-Must-Have-Title Provisions. The Deficiency Letter required Ridgeline to include provisions in its tariff requiring shippers to hold title to the gas tendered for transportation. Draft tariff language has been prepared and was included in the partial response.
Item 9 — Interconnection Agreement as Rate Schedule. The Deficiency Letter required that the Ridgeline-ATPC Interconnection Agreement be filed as a FERC rate schedule rather than as a standalone contractual arrangement. This requirement has been incorporated in Draft Interconnection Agreement Version 3.0, as discussed in Section V.D above.
Item 10 — Penalty Revenue Crediting Mechanism. The Deficiency Letter required Ridgeline to include tariff provisions addressing the crediting of penalty revenues to non-offending shippers. Draft tariff language has been prepared and was included in the partial response.
B. Deficiency Items Under Development (Items 5, 6, 11, 12, 13, 14)
Six (6) deficiency items remain unaddressed and are currently under development as part of the comprehensive Braswell tariff redesign:
Item 5 — Capacity Release Provisions. The Deficiency Letter required Ridgeline to include comprehensive tariff provisions governing the release of firm capacity by releasing shippers, consistent with the Commission's capacity release regulations at 18 C.F.R. § 284.8. Braswell is developing tariff language addressing capacity release posting, bidding, notification, recall rights, and prearranged deal provisions.
Item 6 — NAESB WGQ Version 3.2 Compliance. The Deficiency Letter required Ridgeline to demonstrate compliance with NAESB Wholesale Gas Quadrant ("WGQ") Version 3.2 standards, which the Commission adopted in Order No. 587-W. A gap analysis comparing Ridgeline's current tariff provisions against the NAESB WGQ Version 3.2 standards is underway, and operational flow order provisions are being revised to conform with current NAESB standards.
Item 11 — Creditworthiness Provisions. The Deficiency Letter required Ridgeline to include comprehensive tariff provisions addressing the creditworthiness of prospective and existing shippers. The provisions under development include collateral requirements, acceptable forms of financial assurance, unsecured credit limits based on credit ratings and financial metrics, and procedures for creditworthiness review and dispute resolution.
Item 12 — Segmentation and Flexible Receipt/Delivery Point Provisions. The Deficiency Letter required Ridgeline to address whether its tariff would permit segmentation of firm capacity contracts and/or flexible receipt and delivery point arrangements. Tariff provisions addressing these features are under development, consistent with Commission policy encouraging operational flexibility for shippers.
Item 13 — Greenhouse Gas Emission Cost Recovery. The Deficiency Letter raised the novel issue of whether and how Ridgeline's tariff should address the recovery of costs associated with greenhouse gas ("GHG") emissions, including potential future carbon compliance costs. This is a developing area of Commission policy. Ridgeline is proposing a GHG cost tracker mechanism that would allow for the periodic adjustment of rates to reflect actual GHG compliance costs incurred by Ridgeline, subject to Commission review and approval.
Item 14 — Order No. 2222 DER Aggregation Implications. The Deficiency Letter required Ridgeline to address the implications, if any, of the Commission's Order No. 2222 regarding the participation of distributed energy resource ("DER") aggregations in organized wholesale electric markets. This item is particularly relevant given that Ridgeline's parent company, DEH, has a 250-megawatt ("MW") wind energy portfolio under development, and the Commission has expressed interest in the interrelationship between gas pipeline operations and DER aggregation. Analysis of this item is ongoing.
Ridgeline proposes that any comprehensive settlement in this proceeding include agreed-upon tariff language resolving all fourteen (14) deficiency items. The specific tariff provisions addressing Items 5, 6, 11, 12, 13, and 14 would be negotiated as part of the comprehensive settlement package and included as appendices or exhibits to the settlement agreement.
C. Tariff Structure
Ridgeline's FERC Gas Tariff, Original Volume No. 1, provides for open-access transportation service under Part 284, Subpart G of the Commission's regulations. The tariff includes two principal rate schedules:
• Rate Schedule FT-1 (Firm Transportation): Providing firm transportation service on a contract demand basis, with a reservation charge and a usage charge.
• Rate Schedule IT-1 (Interruptible Transportation): Providing interruptible transportation service on an as-available basis, with a volumetric usage charge.
The General Terms and Conditions of the tariff are being comprehensively revised pursuant to the Braswell tariff redesign recommendations to address the deficiency items described above and to conform with current Commission policies and standards. The tariff utilizes a modified fixed-variable ("MFV") rate design methodology, under which fixed costs are allocated primarily to the reservation charge and variable costs are allocated to the usage charge.
Ridgeline proposes that the settlement rate be treated as a "black box" settlement rate, as further described in Section VII.A below. Under this approach, the agreed-upon total rate represents a compromise among the parties and does not require detailed cost-of-service justification on each individual component. This approach is consistent with well-established Commission settlement policy.
VII. CONDITIONS AND RESERVATIONS
A. Settlement Rate as "Black box"
Ridgeline proposes that the settlement rate agreed upon by the parties be treated as a "black box" settlement rate. Under this approach, which is well-established in Commission settlement practice, the overall rate level is agreed upon by the parties as a compromise without any party conceding its specific position on individual cost-of-service components, including ROE, load factor, depreciation rates, or any other individual input. The "black box" approach allows all parties to accept the negotiated rate without prejudice to their respective positions on underlying cost-of-service methodologies and inputs, should those issues arise in future proceedings.
The "black box" approach is consistent with the Commission's longstanding policy encouraging settlements. As the Commission has recognized, a settlement rate represents a negotiated compromise, and requiring parties to agree on every individual component of cost of service would create unnecessary barriers to settlement. Ridgeline believes the "black box" approach is particularly appropriate here, where the parties' positions on ROE differ significantly but the resulting rate levels are relatively close.
B. Reservation of Litigation Rights
In the event that a settlement is not reached on the terms set forth herein, or on other terms mutually acceptable to the parties, Ridgeline expressly reserves all rights to present its full case at hearing before ALJ Whitfield. This reservation includes, without limitation, the right to propose a rate at or above the redesigned tariff rate of $0.3140/Dth, which is based on the preliminary Braswell analysis using a 75% load factor and a 12.50% ROE. Ridgeline also reserves the right to present updated proxy group analysis, revised cost of service calculations, and any other evidence or arguments in support of its tariff filing.
This settlement offer is made pursuant to FERC Rule 602, 18 C.F.R. § 385.602, and is inadmissible in any contested proceeding before the Commission or any court. All discussions, offers, counteroffers, and communications related to this settlement proposal are privileged and confidential and are protected from disclosure under Rule 602 and Federal Rule of Evidence 408.
C. Regulatory Approvals
Any settlement reached in this proceeding is contingent upon approval by the Commission pursuant to the Commission's settlement review standards, including the requirement that the settlement be found to be fair and reasonable and in the public interest. The settlement must be filed with the Commission as a stipulation for approval, and all parties will have the opportunity to support, oppose, or comment on the settlement as filed.
Ridgeline acknowledges that the Commission retains full authority to approve, reject, or modify any settlement submitted for its review, and that no settlement term shall become effective until approved by the Commission.
D. Lender Considerations
Ridgeline notes that any settlement rate must be sufficient to support Ridgeline's debt service obligations and maintain compliance with the financial covenants contained in its credit agreements. Ridgeline's outstanding debt includes:
(i) A Senior Secured Term Loan in the outstanding principal balance of $362.8 million as of December 31, 2024, issued pursuant to a Credit Facility Agreement dated September 15, 2021, with Pinnacle National Bank, N.A. serving as Administrative Agent, bearing interest at SOFR plus 325 basis points; and
(ii) $150 million in 7.875% Second Lien Senior Secured Notes due 2030, held by Harborview Capital Management LLC and Sentinel Ridge Fund LP.
Certain covenants under the Credit Facility Agreement require that Ridgeline obtain FERC approval of its tariff rates, and the settlement rate must be consistent with Ridgeline's ongoing covenant compliance obligations, including debt service coverage ratio requirements and leverage ratio limitations. Ridgeline raises this point not as a basis for inflating the settlement rate, but to ensure that all parties are aware of the practical constraints within which Ridgeline must operate in negotiating a settlement.
E. Timeline
Ridgeline requests that all parties to this proceeding provide written responses to this Version 2.0 settlement proposal within forty-five (45) days of the date hereof — that is, by approximately December 1, 2023. Written responses should be directed to the settlement communication contacts identified in Section X below, with copies to Settlement Judge Margolis and FERC Trial Staff.
If the responses received indicate a reasonable potential for resolution of the outstanding issues, Ridgeline will promptly request that Settlement Judge Margolis convene an additional settlement conference — which would be the fifth conference in this proceeding — to discuss Version 2.0 and explore the parameters of a comprehensive settlement. Ridgeline respectfully requests that any such conference be scheduled before year-end 2023, to the extent practicable.