PRIVILEGED AND CONFIDENTIAL SETTLEMENT COMMUNICATION PROTECTED UNDER FED. R. EVID. 408 AND 18 C.F.R. § 385.606
SETTLEMENT OFFER — VERSION 3.0
BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION
Docket Nos. RP22-847-000 (Rate Case) and RP22-847-001 (Interconnection)
Ridgeline Midstream Services LLC Applicant
Addressed to All Parties of Record (via counsel):
• Kellner, Royce & Dillard LLP, on behalf of Appalachian Trunk Pipeline Company ("ATPC")
• Whitmore & Sable LLP, on behalf of Marcellus Gas Producers Coalition ("MGPC")
• Fordham Municipal Law Group PC, on behalf of Consolidated Municipal Gas Authority ("CMGA")
• FERC Trial Staff (Jonathan Briggs, Office of General Counsel)
This document is a settlement communication made for the purpose of compromise negotiations. It is privileged and confidential, and is protected from disclosure and use in any subsequent proceeding pursuant to Federal Rule of Evidence 408, 18 C.F.R. § 385.606, and the Protective Order entered in these dockets. No party may cite, reference, or introduce this document or any of its contents in any litigation, evidentiary hearing, or other proceeding.
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I. Introduction and Purpose
This Settlement Offer — Version 3.0 ("Version 3.0" or this "Offer") is submitted by Ridgeline Midstream Services LLC ("Ridgeline" or "Applicant"), by and through its counsel Calderwood & Harkness LLP, to all Parties of Record in the above-captioned proceedings before the Federal Energy Regulatory Commission ("FERC" or the "Commission"). This Offer supersedes and replaces in their entirety all prior settlement offers submitted by Ridgeline in these dockets, including Settlement Offer — Version 1.0 dated November 28, 2022 ("Version 1.0") and Settlement Offer — Version 2.0 dated October 16, 2023 ("Version 2.0"). Neither Version 1.0 nor Version 2.0 shall have any continuing force or effect, and this Version 3.0 constitutes Ridgeline's sole operative settlement proposal as of the date hereof.
This document presents Ridgeline's comprehensive settlement proposal to resolve all outstanding issues in FERC Docket No. RP22-847-000 (the initial tariff rate proceeding) and FERC Docket No. RP22-847-001 (the interconnection authorization proceeding). The proposal is designed to facilitate a negotiated resolution of these proceedings that would serve the interests of all parties, avoid the substantial costs and inherent uncertainties of a full Track II evidentiary hearing, and advance the public interest in the timely establishment of just and reasonable rates for transportation service on the Ridgeline Pipeline System.
Ridgeline is a Delaware limited liability company with its principal office at 700 Kanawha Boulevard East, Suite 1400, Charleston, West Virginia 25301. Ridgeline's Employer Identification Number is 87-4231956, and its FERC Code is 960442. Ridgeline is the wholly-owned subsidiary of Dunmore Energy Holdings Ltd. ("DEH"), a Cayman Islands exempted limited company, Registration Number CR-381204. DEH is the ultimate parent entity of Ridgeline and holds a 100% membership interest in Ridgeline through an intermediate holding company structure.
This Version 3.0 reflects the substantially redesigned tariff parameters that Ridgeline has developed in response to the Deficiency Letter issued on January 19, 2023 by the Commission's Office of Energy Market Regulation (authored by Dr. Miriam Okafor, Senior Economic Analyst), which identified fourteen (14) discrete deficiency items requiring remediation in Ridgeline's original tariff filing. Since April 15, 2023, Ridgeline has engaged Braswell Energy Consulting Group LLC ("Braswell"), under Engagement No. BEC-2023-0041, to conduct a comprehensive tariff redesign addressing each of the fourteen deficiency items. The tariff redesign has been a substantial undertaking requiring more than seventeen months of intensive analytical and drafting work. The revised rate and tariff parameters set forth in this Offer reflect the output of that engagement and represent a fundamentally redesigned tariff structure that Ridgeline believes fully addresses the Commission Staff's concerns.
The above-captioned proceedings have been in a dormant posture since September 8, 2023, when Administrative Law Judge Clara Whitfield granted Ridgeline's Second Motion for Extension of Time and directed the proceedings to dormant status pending completion of the tariff redesign. ALJ Whitfield's subsequent order dated March 4, 2024 granted Ridgeline's Third Motion for Extension of Time, establishing a final deadline of February 21, 2025 for filing Ridgeline's redesigned tariff and supplemental testimony. That order also imposed a quarterly reporting condition, requiring Ridgeline to file quarterly status reports with the Chief ALJ regarding the progress of the tariff redesign and the status of settlement discussions. Ridgeline has filed two such quarterly status reports to date — on June 15, 2024 and September 14, 2024 — and anticipates filing the third on December 13, 2024.
This settlement proposal is communicated solely and exclusively for settlement purposes. It is protected under Federal Rule of Evidence 408 and 18 C.F.R. § 385.606, and it shall not be cited, referenced, or introduced in any subsequent litigation, evidentiary hearing, or other proceeding before the Commission, any administrative law judge, any court, or any other tribunal. Nothing in this Offer shall be construed as an admission, concession, or waiver of any fact, legal position, or argument that Ridgeline may advance in any future proceeding.
Ridgeline submits this Offer in good faith, with a genuine desire to reach a negotiated resolution that serves the interests of all parties and the public interest. Ridgeline has invested substantial time, resources, and effort in developing the revised parameters set forth herein, and believes that this Offer provides a reasonable and commercially workable framework for settlement. Ridgeline recognizes that meaningful differences remain between the parties' positions, but is confident that the mechanisms and compromise frameworks proposed herein — including the rate moratorium and step-down mechanism, the revenue sharing collar, the phased interconnection cost allocation, and the load factor compromise — provide a viable pathway to bridging the remaining gap.
This Version 3.0 builds upon the progress achieved through the four settlement conferences held to date before Settlement Judge Howard Margolis:
• First Settlement Conference: November 30, 2022
• Second Settlement Conference: March 8, 2023
• Third Settlement Conference: July 12, 2023
• Fourth Settlement Conference: January 18, 2024
Ridgeline appreciates Settlement Judge Margolis's continued engagement with this proceeding and the guidance he has provided during the settlement process. Ridgeline also acknowledges the constructive participation of ATPC, MGPC, CMGA, and FERC Trial Staff in the settlement discussions to date, and looks forward to continued productive dialogue aimed at reaching a comprehensive resolution.
II. Background and Procedural History
A. The Ridgeline Pipeline System
The Ridgeline Pipeline System (the "System" or the "Pipeline") is a 187-mile, 24-inch-diameter high-pressure natural gas transmission pipeline located in West Virginia and southwestern Pennsylvania. The Pipeline originates at the Wetzel County Interconnect in Wetzel County, West Virginia (latitude 39.6120° N, longitude 80.7540° W) and terminates at the Waynesburg Compressor Station in Greene County, Pennsylvania (latitude 39.8965° N, longitude 80.1810° W). The Pipeline traverses portions of Wetzel, Marion, and Monongalia Counties in West Virginia and Greene County in Pennsylvania, crossing the West Virginia-Pennsylvania state line at approximately milepost 142.
The System is equipped with three compressor stations that provide the motive force necessary for the transmission of natural gas through the Pipeline. These stations are:
(i) Wetzel Station, located at milepost 0.0 near the Wetzel County Interconnect, equipped with two Solar Titan 130 gas turbine-driven centrifugal compressors, providing 15,000 horsepower of installed compression capacity;
(ii) Mannington Station, located at approximately milepost 87 in Marion County, West Virginia, equipped with two Solar Titan 130 gas turbine-driven centrifugal compressors, providing 15,000 horsepower of installed compression capacity; and
(iii) Waynesburg Station, located at the Pipeline's terminus at approximately milepost 187 in Greene County, Pennsylvania, equipped with two Solar Titan 130 gas turbine-driven centrifugal compressors, providing 15,000 horsepower of installed compression capacity.
The aggregate installed compression capacity of the three compressor stations is 45,000 horsepower. The Pipeline has a certificated design capacity of 1.2 billion cubic feet per day ("Bcf/d"), which is equivalent to 1,200,000 dekatherms per day ("Dth/d") at an assumed heat content of 1,000 British Thermal Units per cubic foot ("BTU/cf").
The Pipeline's current average throughput is approximately 680 million cubic feet per day ("MMcf/d"), representing a utilization rate of approximately 56.67% of design capacity. The relatively low utilization rate reflects the Pipeline's early operational stage and the continuing development of production volumes from upstream Marcellus Shale and Utica Shale formations in the Pipeline's receipt area.
The Pipeline was placed in service on October 1, 2021. The original construction cost of the Pipeline, inclusive of all pipeline facilities, compressor stations, metering equipment, SCADA systems, right-of-way acquisition, and related infrastructure, was $587.2 million. The construction was managed by Ridgeline under an engineering, procurement, and construction ("EPC") arrangement with Dunmore Infrastructure Construction LLC, a DEH affiliate.
B. Procedural Summary
The procedural history of these dockets is set forth below in chronological order.
May 12, 2022. Ridgeline filed its application for an initial tariff rate and interconnection authorization with the Commission 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 sought authorization for Ridgeline's FERC Gas Tariff, Original Volume No. 1, providing for open-access transportation service under Part 284, Subpart G of the Commission's regulations. The filing proposed a maximum recourse rate of $0.2265/Dth for firm transportation service under proposed Rate Schedule FT-1, based on a 14.00% return on equity, 100% load factor, and a total cost of service of $97.36 million. The filing also sought authorization for the construction and operation of interconnection facilities at the Wetzel County Interconnect, where Ridgeline's system would tie into the existing 30-inch mainline of Appalachian Trunk Pipeline Company ("ATPC") at ATPC Milepost 412.6.
June 14, 2022. The Commission issued a Notice of Filing, establishing August 15, 2022 as the deadline for motions to intervene and protests.
July 28, 2022. The Marcellus Gas Producers Coalition ("MGPC") filed a timely motion to intervene. MGPC is an unincorporated association of fourteen independent natural gas producers operating in the Marcellus Shale and Utica Shale formations of West Virginia and Pennsylvania. MGPC's Executive Director is Calvin Dreyer, and MGPC is represented in these proceedings by Rebekah Montague of Whitmore & Sable LLP. MGPC's intervention stated its interest as a potential shipper coalition whose members would be affected by the rates, terms, and conditions of transportation service on the Ridgeline Pipeline System.
August 1, 2022. The Consolidated Municipal Gas Authority ("CMGA") filed a timely motion to intervene. CMGA is a joint action agency organized under the laws of the Commonwealth of Pennsylvania, serving as the natural gas purchasing agent for twelve municipal gas distribution utilities in southwestern Pennsylvania. CMGA's General Manager is Dennis Ott, and CMGA is represented in these proceedings by Stephen Greer of Fordham Municipal Law Group PC. CMGA's intervention stated its interest as a consumer coalition whose member utilities and their ratepayers would be directly affected by transportation rates on the Ridgeline system.
August 15, 2022. ATPC filed its protest and motion to intervene on the final day of the intervention period. ATPC is an interstate natural gas pipeline company operating a 640-mile pipeline system with a total capacity of 3.8 Bcf/d, FERC Code 840117, Employer Identification Number 25-1987643. ATPC is a subsidiary of Tidewater Infrastructure Partners LP, whose Chairman is Harrison J. Alderman and whose President and Chief Executive Officer is Marcus R. Alderman. ATPC's Vice President of Regulatory Affairs is Sandra K. Fenton. ATPC is represented in these proceedings by William Pratt of Kellner, Royce & Dillard LLP. ATPC's protest opposed Ridgeline's proposed interconnection configuration and cost allocation, arguing that Ridgeline's proposal would improperly shift $14.7 million in interconnection facilities costs to ATPC and its shippers. ATPC further argued that the proposed metering station design was inadequate to handle bidirectional flows and that the proposed interconnection agreement contained commercially unreasonable terms.
September 22, 2022. The Commission issued an order granting all motions to intervene, establishing a Track II procedural schedule for the proceedings, and appointing the Honorable Howard Margolis as Settlement Judge pursuant to 18 C.F.R. § 385.603.
November 14, 2022. The Honorable Clara Whitfield was appointed as the presiding Administrative Law Judge. ALJ Whitfield convened a prehearing conference on November 14, 2022, at which the procedural schedule for testimony, discovery, and hearing was established.
December 5, 2022. Ridgeline filed its direct testimony and exhibits in support of its application. Ridgeline's direct case consisted of the testimony of seven witnesses, including the policy testimony of James K. Winfield (CEO and President), the rate testimony of Dr. Natasha Orlov (Director of Rates and Regulatory), the engineering testimony of Thomas Greaves (VP, Engineering and Operations), and the financial testimony of Angela Moretti (VP, Finance and Treasurer), among others.
January 9, 2023. ATPC, MGPC, and CMGA filed their respective answering testimony. ATPC's case included testimony from William Pratt and the engineering testimony of ATPC's staff challenging the interconnection design. MGPC's case included the rate testimony of Dr. Eleanor Vasquez, an independent rate consultant retained by MGPC, who presented a detailed cost-of-service analysis supporting a maximum recourse rate of $0.1740/Dth and an ROE of 11.25%. CMGA's answering testimony adopted and supported ATPC's positions on interconnection cost allocation.
January 19, 2023. The Commission's Office of Energy Market Regulation, through Dr. Miriam Okafor, Senior Economic Analyst, issued a comprehensive Deficiency Letter identifying fourteen (14) deficiency items in Ridgeline's tariff filing. The Deficiency Letter required Ridgeline to address material deficiencies relating to, among other things, the rate design methodology, fuel-use and lost-and-unaccounted-for gas tracking, interruptible transportation revenue crediting, capacity release provisions, NAESB compliance, electronic bulletin board requirements, shipper-must-have-title provisions, the interconnection agreement format, penalty revenue crediting, creditworthiness standards, segmentation and flexible point provisions, greenhouse gas cost recovery, and Order No. 2222 compliance.
February 6, 2023. In light of the scope and complexity of the Deficiency Letter, ALJ Whitfield issued an order staying the procedural schedule pending Ridgeline's response to the fourteen deficiency items.
March 15, 2023. Ridgeline filed a partial response addressing eight (8) of the fourteen deficiency items and requested additional time to complete the remaining six items, which required more extensive tariff redesign work.
May 10, 2023. ALJ Whitfield granted Ridgeline's First Motion for Extension of Time, providing an additional 120 days (through approximately September 7, 2023) for Ridgeline to complete its response to the remaining deficiency items.
September 8, 2023. ALJ Whitfield granted Ridgeline's Second Motion for Extension of Time, providing an additional 180 days and placing the proceeding in dormant status pending completion of the comprehensive tariff redesign that Ridgeline had undertaken with Braswell Energy Consulting Group LLC.
March 4, 2024. ALJ Whitfield granted Ridgeline's Third Motion for Extension of Time, providing a twelve-month extension through February 21, 2025 for filing the redesigned tariff and supplemental testimony. The order imposed a condition requiring Ridgeline to file quarterly status reports with the Chief Administrative Law Judge regarding the progress of the tariff redesign and the status of settlement discussions.
June 15, 2024. Ridgeline filed its first quarterly status report.
September 14, 2024. Ridgeline filed its second quarterly status report.
December 13, 2024. Ridgeline anticipates filing its third quarterly status report.
February 21, 2025. This is the current deadline for filing Ridgeline's redesigned tariff and supplemental testimony.
C. Evolution of Settlement Discussions
Settlement discussions have proceeded in parallel with the procedural developments described above. The evolution of Ridgeline's settlement position is summarized below.
Version 1.0 (November 2022). Ridgeline's initial settlement offer proposed a resolution at the original filing parameters: a recourse rate of $0.2265/Dth, a return on equity of 14.00%, a 100% load factor, and a total cost of service of $97.36 million. Version 1.0 was presented at the first settlement conference on November 30, 2022. All intervenors rejected Version 1.0 as providing no meaningful concession from Ridgeline's filed position.
Version 2.0 (October 2023). Ridgeline's second settlement offer, presented in advance of the fourth settlement conference (ultimately held on January 18, 2024), offered a significant concession by reducing the proposed return on equity from 14.00% to 13.00% — a reduction of 100 basis points. Version 2.0 also included preliminary tariff redesign parameters reflecting the initial phases of the Braswell engagement. Intervenors acknowledged the ROE reduction as meaningful movement but continued to press for further concessions on rate, load factor, and interconnection cost allocation.
Version 3.0 (This Offer — September 2024). This Version 3.0 reflects the comprehensive tariff redesign completed under the Braswell engagement and represents a fundamentally revised set of rate and tariff parameters. The key changes from the original filing include: (i) adoption of a modified fixed-variable rate design methodology; (ii) reduction of the load factor from 100% to 75%; (iii) further reduction of the return on equity from 14.00% to 12.50% (a cumulative concession of 150 basis points from the original filing); (iv) a revised total cost of service of $103.15 million (increased from the original $97.36 million due primarily to updated operating expenses and reduced revenue credits); and (v) a revised recourse rate of $0.3140/Dth (increased from $0.2265/Dth due to the substantial reduction in billing determinants resulting from the lower load factor). The revised tariff fully addresses all fourteen deficiency items identified in the January 19, 2023 Deficiency Letter.
Ridgeline acknowledges that a gap of approximately $0.058/Dth currently exists between Ridgeline's proposed floor rate of $0.3140/Dth and the settlement ceiling of approximately $0.2560/Dth that ATPC and MGPC have communicated through the settlement process (most recently at the fourth settlement conference on January 18, 2024). As discussed in Section VII of this Offer, Ridgeline proposes specific mechanisms to bridge this gap and facilitate a comprehensive settlement.
III. Ridgeline's Revised Rate and Cost-of-Service Parameters
A. Rate Base
Ridgeline's total rate base remains at $612.40 million, unchanged from its original filing. The components of the rate base are set forth below.
Net Plant in Service: $563.71 million. This figure is derived from the original construction cost of $587.2 million, less accumulated depreciation of $23.49 million. Depreciation has been calculated at a straight-line rate of 2.5% per annum, adjusted for the partial-year in-service period from the Pipeline's in-service date of October 1, 2021 through the end of the test year ended March 31, 2022. The $587.2 million original construction cost has been supported by detailed cost records and audited construction accounts presented in Ridgeline's direct testimony and exhibits.
Working Capital Allowance: $18.64 million. The working capital allowance has been calculated pursuant to the Commission's standard formula, as one-eighth (1/8) of the sum of Operations and Maintenance ("O&M") expense and Administrative and General ("A&G") expense. This methodology is consistent with established FERC precedent for natural gas pipeline companies.
Accumulated Deferred Income Taxes (ADIT): ($12.45 million). Accumulated deferred income taxes reduce rate base, reflecting the time value of the tax benefit associated with accelerated depreciation and other temporary differences between book and tax accounting. The ADIT balance of $12.45 million reflects the tax benefit that has accrued to Ridgeline as of the test year and is properly deducted from rate base so that ratepayers receive the benefit of the interest-free capital provided by the deferred taxes.
Other Rate Base Items: $42.50 million. This component includes gas stored underground, prepayments, and materials and supplies necessary for ongoing pipeline operations. These items represent working inventory and prepaid costs that are properly includable in rate base.
Rate Base Reconciliation:
Net Plant in Service: $563.71 million \+ Working Capital Allowance: $18.64 million \- ADIT: ($12.45 million) \+ Other Rate Base Items: $42.50 million = Total Rate Base: $612.40 million
B. Return on Equity
Ridgeline's revised proposed return on equity ("ROE") is 12.50%. This represents a reduction of 150 basis points from the 14.00% ROE proposed in Ridgeline's original filing of May 12, 2022, and a further reduction of 50 basis points from the 13.00% ROE proposed in Version 2.0 of October 2023.
The 12.50% ROE is supported by an updated discounted cash flow ("DCF") proxy group analysis as of the third quarter of 2024, prepared in coordination with Dr. Raymond Braswell of Braswell Energy Consulting Group LLC under Engagement No. BEC-2023-0041. The updated DCF analysis employed the Commission's standard two-step DCF methodology, utilizing a proxy group of publicly traded natural gas pipeline companies with comparable risk profiles, and produced a zone of reasonableness with a median ROE supportive of Ridgeline's proposed 12.50% return.
The positions of the other parties with respect to ROE are as follows:
• ATPC's Proposed ROE: 10.75%. ATPC proposed an ROE of 10.75% in the answering testimony of William Pratt, counsel of record, filed through Kellner, Royce & Dillard LLP on January 9, 2023. ATPC's ROE proposal was based on a DCF analysis utilizing a different proxy group and different growth rate assumptions than those employed by Ridgeline.
• MGPC's Proposed ROE: 11.25%. MGPC proposed an ROE of 11.25% in the testimony of Dr. Eleanor Vasquez, filed through Rebekah Montague of Whitmore & Sable LLP on January 9, 2023. Dr. Vasquez's analysis utilized both DCF and capital asset pricing model ("CAPM") methodologies and produced a recommended ROE at the upper end of her estimated zone of reasonableness.
Ridgeline maintains that 12.50% is the minimum ROE supportable under the updated DCF methodology. Ridgeline further maintains that any ROE below 12.50% would be confiscatory in light of the following considerations: (i) the Pipeline is a greenfield construction project that was placed in service less than three years ago and faces the attendant construction risk, ramp-up risk, and market risk associated with a new-build facility; (ii) the Pipeline's current utilization rate of only 56.67% demonstrates the ongoing market risk and throughput uncertainty that Ridgeline's investors bear; and (iii) Ridgeline's investors committed $587.2 million of capital to construct the Pipeline and are entitled to a return that reflects the risk of that investment. The 150-basis-point reduction from the original filing represents a meaningful and substantial concession by Ridgeline that should be recognized by the intervenors.
C. Capital Structure and Cost of Debt
Ridgeline's capital structure consists of 55% equity and 45% debt. This capital structure is unchanged from the original filing and is consistent with the actual capitalization of Ridgeline. The equity component is funded through DEH's investment in Ridgeline, while the debt component is funded through the financing arrangements described below.
Ridgeline's weighted average cost of debt is 5.25%. This weighted average reflects the blended cost of Ridgeline's two tranches of outstanding indebtedness:
(i) $400 million Senior Secured Term Loan. This facility was arranged by a syndicate led by Pinnacle National Bank, N.A. as administrative agent and lead arranger. The syndicate consists of Pinnacle National Bank, N.A. (40% commitment), Granite Trust Company (30% commitment), and Lakeshore Capital Bank (30% commitment). The term loan bears interest at a floating rate of the Secured Overnight Financing Rate ("SOFR") plus a margin of 325 basis points. As of December 31, 2024, the outstanding principal balance of the term loan is $362.8 million, reflecting scheduled amortization payments.
(ii) $150 million 7.875% Second Lien Notes. These notes were placed privately with Harborview Capital Management LLC and Sentinel Ridge Fund LP. The notes bear a fixed interest rate of 7.875% and mature in 2029.
The weighted average cost of debt of 5.25% is derived from the blended interest costs of these two facilities, weighted by their respective outstanding balances.
D. Weighted Average Cost of Capital
Ridgeline's revised weighted average cost of capital ("WACC") is 9.2375%, calculated as follows:
Equity Component: 55% × 12.50% = 6.875% Debt Component: 45% × 5.25% = 2.3625% WACC: 6.875% + 2.3625% = 9.2375%
E. Revised Cost of Service
Ridgeline's revised total cost of service is $103.15 million. Each component of the cost of service is detailed below.
Return on Rate Base: $56.57 million. The return on rate base is calculated by applying the revised WACC of 9.2375% to the total rate base of $612.40 million. This produces a required return of $56.57 million ($612.40M × 9.2375% = $56.57M).
Depreciation Expense: $14.68 million. Depreciation expense is calculated at a straight-line rate of 2.5% per annum applied to the original construction cost of $587.2 million. This rate and amount are unchanged from the original filing. The 2.5% depreciation rate implies a 40-year useful life for the Pipeline and its facilities, which is consistent with Commission precedent for natural gas transmission pipelines.
Operations and Maintenance (O&M) Expense: $13.92 million. O&M expense has been updated from the $12.44 million figure included in the original filing to $13.92 million, an increase of $1.48 million. This increase reflects current operating costs, including higher fuel costs, increased maintenance expenditures for the three compressor stations, and additional labor costs associated with current staffing levels. The updated O&M expense has been supported by actual cost data from Ridgeline's first two full years of operation (October 2021 through September 2023) and projected cost estimates for the current operating period.
Administrative and General (A&G) Expense: $5.14 million. A&G expense has been updated from the $4.82 million figure included in the original filing to $5.14 million, an increase of $0.32 million. This increase reflects current administrative costs, including increased insurance premiums, regulatory compliance costs, and management fees. As with O&M expense, the updated A&G expense is supported by actual cost data and current period projections.
Taxes Other Than Income: $3.80 million. This category includes property taxes and franchise taxes levied by the States of West Virginia and Pennsylvania on the Pipeline's physical assets and operations. This amount is unchanged from the original filing.
Income Tax Allowance: $15.04 million. The income tax allowance has been recalculated to reflect the revised ROE of 12.50%. The allowance is grossed-up at an effective combined federal and state income tax rate of approximately 26.13%, which reflects the current federal corporate income tax rate of 21% and the West Virginia corporate net income tax rate of 6.5%. The income tax allowance of $15.04 million ensures that the equity return component of the cost of service is stated on a pre-tax basis, so that the actual equity return to Ridgeline's investors, after payment of income taxes, equals the authorized ROE of 12.50%.
Revenue Credits: ($6.00 million). Revenue credits offset the cost of service by reflecting revenues earned from sources other than firm transportation service, including revenues from interruptible transportation, parking and lending, and other ancillary services. Ridgeline's revised revenue credit of $6.00 million represents a reduction from the $16.10 million revenue credit included in the original filing. The reduction reflects Ridgeline's updated and more conservative estimate of non-firm revenues based on actual operating experience. The lower revenue credit is a significant driver of the increased cost of service relative to the original filing.
Total Revised Cost of Service — Reconciliation:
F. Load Factor and Billing Determinants
Ridgeline proposes a 75% load factor for purposes of deriving the billing determinants used to calculate the maximum recourse rate. This represents a significant modification from the 100% load factor included in Ridgeline's original filing and directly addresses Deficiency Item 4 of the January 19, 2023 Deficiency Letter, which questioned the appropriateness of a 100% load factor for a newly constructed pipeline with limited contracted capacity.
The 75% load factor produces the following billing determinants:
Design Capacity: 1,200,000 Dth/d × Days per Year: 365 × Load Factor: 75% = Revised Billing Determinants: 328,500,000 Dth/yr
By comparison, the original filing at a 100% load factor produced billing determinants of 1,200,000 Dth/d × 365 days × 100% = 438,000,000 Dth/yr.
Ridgeline notes that the intervenors — ATPC, MGPC, and CMGA — have advocated for a load factor of 85% or higher in the settlement discussions conducted to date. Ridgeline maintains that 75% is the appropriate load factor given the Pipeline's current throughput of only approximately 680 MMcf/d, which represents a utilization rate of only 56.67% of design capacity. While throughput is expected to increase as upstream production continues to develop in the Pipeline's receipt area, the 75% load factor already assumes a substantial increase over current utilization. A load factor of 85% or higher would produce billing determinants that exceed any reasonable projection of near-term throughput and would result in a rate that fails to provide Ridgeline with a reasonable opportunity to recover its costs.
Notwithstanding the foregoing, Ridgeline is willing to consider adjustments to the load factor as part of a comprehensive settlement, as discussed in Section VII.D of this Offer.
G. Proposed Recourse Rate
Ridgeline's total revised recourse rate is $0.3140/Dth, consisting of the following two components:
Reservation Rate: $0.3102/Dth Usage Rate: $0.0038/Dth Total Recourse Rate: $0.3140/Dth
The total recourse rate is derived by dividing the total cost of service by the annual billing determinants:
$103.15 million ÷ 328,500,000 Dth/yr = $0.3140/Dth
The reservation rate of $0.3102/Dth represents the fixed cost component of the rate, designed to recover the demand-related costs of providing firm transportation service. The usage rate of $0.0038/Dth represents the variable cost component, designed to recover volumetric costs such as fuel and variable O&M that are incurred only when gas is actually transported.
Ridgeline acknowledges that the proposed recourse rate of $0.3140/Dth is higher than the $0.2265/Dth rate proposed in the original filing. This increase is attributable primarily to the substantial reduction in billing determinants resulting from the adoption of a 75% load factor (a 25% reduction in billing determinants), partially offset by the reduction in the return on equity from 14.00% to 12.50%. The higher per-unit rate is a mathematical consequence of spreading the cost of service over fewer billing units and does not reflect any increase in the underlying revenue requirement beyond the modest increases in O&M and A&G expenses and the reduction in revenue credits described above.
For reference, the evolution of Ridgeline's proposed rate is as follows:
• Original Filing (May 2022): $0.2265/Dth ($0.2223 reservation + $0.0042 usage), based on 14.00% ROE and 100% load factor
• Version 2.0 (October 2023): Intermediate rate reflecting 13.00% ROE and preliminary tariff redesign parameters
• Version 3.0 (This Offer — September 2024): $0.3140/Dth ($0.3102 reservation + $0.0038 usage), based on 12.50% ROE and 75% load factor
Ridgeline's position is that $0.3140/Dth is Ridgeline's floor rate for settlement purposes. This rate reflects the modified fixed-variable methodology adopted in response to the Commission Staff's Deficiency Letter and produces a just and reasonable return for the level of risk associated with this greenfield pipeline. Ridgeline believes that any rate below $0.3140/Dth, absent accompanying adjustments to other settlement parameters (such as the load factor, ROE, or cost allocation), would be insufficient to provide Ridgeline with a reasonable opportunity to recover its cost of service and earn a fair return.
H. Acknowledgment of Rate Gap
Ridgeline acknowledges that a material gap currently exists between the parties' respective rate positions. The current gap is approximately $0.058/Dth, calculated as follows:
Ridgeline's proposed floor: $0.3140/Dth ATPC/MGPC communicated ceiling: ~$0.2560/Dth Gap: ~$0.058/Dth
The ATPC/MGPC ceiling of approximately $0.2560/Dth was communicated during the settlement discussions through the fourth settlement conference held on January 18, 2024. This ceiling appears to be derived from a combination of ATPC's proposed ROE of 10.75% and MGPC's proposed ROE of 11.25%, applied to a load factor of 85% or higher.
While this gap is significant, Ridgeline does not believe it is insurmountable. The gap reflects fundamental differences in the parties' positions on two key parameters — the appropriate load factor and the appropriate return on equity — and Ridgeline believes that further negotiations focused on these parameters, potentially utilizing the bridging mechanisms proposed in Section VII of this Offer, can narrow the difference to a point where a comprehensive settlement is achievable.
IV. Proposed Settlement Terms — Tariff Provisions
The following sections describe the tariff provisions that Ridgeline proposes to include in the redesigned FERC Gas Tariff, Original Volume No. 1, as part of a comprehensive settlement. These provisions have been developed in coordination with Braswell Energy Consulting Group LLC and are designed to address each of the fourteen deficiency items identified in the January 19, 2023 Deficiency Letter.
A. Rate Methodology
Ridgeline proposes a modified fixed-variable ("MFV") rate design at a 75% load factor. The MFV methodology classifies costs as either demand-related or commodity-related and assigns them to the reservation charge and usage charge, respectively. This approach is consistent with established Commission precedent for natural gas pipeline rate design.
The two-part rate structure consists of: (i) a reservation charge, which is charged to firm transportation shippers on a per-Dth basis based on their contract demand quantities, regardless of actual throughput; and (ii) a usage charge, which is charged on a per-Dth basis based on actual volumes transported.
Ridgeline proposes two rate schedules:
• Rate Schedule FT-1 (Firm Transportation Service): Provides firm, priority transportation service at the maximum recourse rate of $0.3140/Dth (reservation plus usage). Firm shippers would have primary firm rights to pipeline capacity and would be entitled to scheduling priority over interruptible service.
• Rate Schedule IT-1 (Interruptible Transportation Service): Provides non-firm, interruptible transportation service at a rate derived from the firm transportation rate. Interruptible transportation is provided on an as-available basis and is subject to interruption to accommodate firm service nominations.
Consistent with the Commission's requirements and addressing Deficiency Item 3 of the Deficiency Letter, all revenues received from interruptible transportation service under Rate Schedule IT-1 would be credited to firm transportation shippers through a periodic revenue crediting mechanism, thereby reducing the effective cost of firm transportation service.
B. Fuel-Use and Lost-and-Unaccounted-For Gas (FL&U) Tracker
Ridgeline proposes an annual fuel-use and lost-and-unaccounted-for gas ("FL&U") tracker mechanism with true-up, addressing Deficiency Item 2 of the Deficiency Letter. The FL&U tracker would operate as follows:
(i) An initial FL&U retention percentage would be established based on engineering estimates of fuel consumption at the three compressor stations (Wetzel, Mannington, and Waynesburg) and actual operational data from the Pipeline's first years of operation.
(ii) On an annual basis, Ridgeline would file an FL&U report with the Commission comparing the actual fuel-use and lost-and-unaccounted-for gas volumes experienced during the prior twelve-month period to the amounts retained under the then-effective FL&U retention percentage.
(iii) A true-up mechanism would adjust the FL&U retention percentage prospectively based on the variance between actual and estimated volumes, ensuring that shippers bear only the actual fuel costs incurred in the transportation of their gas.
(iv) The annual filing and true-up procedure would be conducted in accordance with established Commission precedent and would provide shippers with an opportunity to review and challenge the filed FL&U data.
C. Capacity Release Provisions
Ridgeline proposes to include full capacity release provisions in the General Terms and Conditions ("GT&Cs") of its tariff, in compliance with 18 C.F.R. § 284.8 and addressing Deficiency Item 5 of the Deficiency Letter. The capacity release provisions would include:
(i) Pre-arranged capacity release: Releasing shippers would have the right to designate a specific replacement shipper for released capacity, subject to the Commission's bidding requirements and price cap provisions.
(ii) Open-season capacity release: Releasing shippers would have the right to post available capacity for release on Ridgeline's electronic bulletin board, with prospective replacement shippers submitting bids during a defined open-season period.
(iii) Recall and reput rights: Releasing shippers would have the right to recall released capacity under specified conditions and to reput recalled capacity to the replacement shipper. The terms and conditions governing recall and reput rights would be clearly defined in the GT&Cs.
The capacity release provisions would be fully integrated with Ridgeline's nomination and scheduling procedures and would be administered through Ridgeline's electronic bulletin board system.
D. NAESB Standards Compliance
Ridgeline proposes full compliance with the North American Energy Standards Board ("NAESB") Wholesale Gas Quadrant ("WGQ") Version 3.2 standards, addressing Deficiency Item 6 of the Deficiency Letter. The redesigned tariff would incorporate the applicable NAESB WGQ standards by reference and would include detailed operational flow order provisions aligned with NAESB standards. Ridgeline's nomination cycles, scheduling procedures, confirmation processes, and imbalance management provisions would all conform to NAESB WGQ Version 3.2 requirements.
E. Electronic Bulletin Board (EBB) Requirements
Ridgeline proposes to implement a fully functional electronic bulletin board ("EBB") system, addressing Deficiency Item 7 of the Deficiency Letter. The EBB would provide posting and display of the following information, at a minimum:
(i) Available capacity on the Ridgeline Pipeline System, updated daily;
(ii) Operational notices, including planned and unplanned maintenance, operational flow orders, and force majeure events;
(iii) Transactional information, including capacity release postings, bid information, and transaction results;
(iv) Index of customers and contract information as required by the Commission's regulations; and
(v) Tariff and rate schedule information, including the currently effective tariff and any pending filings.
The EBB would be accessible to all shippers and potential shippers via the internet on a non-discriminatory basis, consistent with Commission requirements.
F. Shipper-Must-Have-Title Provisions
Ridgeline proposes to incorporate adequate shipper-must-have-title provisions into the GT&Cs of its tariff, addressing Deficiency Item 8 of the Deficiency Letter. These provisions would require that each shipper tendering gas for transportation on the Ridgeline system hold title to the gas at the point of receipt and be able to demonstrate such title upon request. The shipper-must-have-title provisions are designed to prevent the unauthorized use of pipeline capacity and to ensure that only parties with legitimate title to the gas being transported may utilize the Pipeline's services.
G. Interconnection Agreement as Rate Schedule
Ridgeline proposes that the Interconnection Agreement between Ridgeline and ATPC governing the facilities, operations, and cost allocation at the Wetzel County Interconnect be filed with the Commission as a FERC rate schedule, addressing Deficiency Item 9 of the Deficiency Letter. Filing the Interconnection Agreement as a rate schedule would ensure Commission oversight of the agreement's terms and would provide transparency and regulatory certainty for all affected parties. The Interconnection Agreement rate schedule would be filed concurrently with the redesigned tariff and would be subject to Commission approval as part of the overall settlement or, in the absence of settlement, as part of the redesigned tariff filing.
H. Penalty Revenue Crediting Mechanism
Ridgeline proposes that all penalty revenues collected from shippers for tariff violations (such as unauthorized overrun penalties and scheduling penalties) be credited to non-offending shippers, addressing Deficiency Item 10 of the Deficiency Letter. The penalty revenue crediting mechanism would allocate penalty revenues to non-offending shippers on a pro rata basis, based on their respective contract demand quantities. The crediting would be performed on an annual basis, with the credited amounts applied as a reduction to each non-offending shipper's reservation charges in the subsequent billing period.
I. Creditworthiness Provisions
Ridgeline proposes to include comprehensive creditworthiness provisions in its tariff, addressing Deficiency Item 11 of the Deficiency Letter. These provisions would establish the following framework:
(i) Unsecured credit limits would be determined based on each shipper's creditworthiness, as assessed through a combination of credit ratings from nationally recognized statistical rating organizations (e.g., S&P Global Ratings, Moody's Investors Service), financial statement analysis, and payment history.
(ii) Minimum credit rating thresholds would be established, below which a shipper would be required to provide additional collateral or financial assurance.
(iii) Collateral requirements would be imposed on shippers that do not meet the minimum creditworthiness standards, with acceptable forms of financial assurance including irrevocable standby letters of credit from qualified financial institutions, cash deposits, and guaranties from creditworthy parent entities or affiliates.
The creditworthiness provisions would be applied on a non-discriminatory basis to all shippers and would be subject to periodic review and reassessment.
J. Segmentation and Flexible Receipt/Delivery Point Provisions
Ridgeline proposes to include segmentation rights and flexible receipt and delivery point provisions in its tariff, addressing Deficiency Item 12 of the Deficiency Letter. These provisions are designed to maximize shipper flexibility and promote the efficient utilization of pipeline capacity. Firm transportation shippers would have the right to:
(i) Segment their firm capacity into multiple segments, allowing different volumes to be transported over different portions of the Pipeline;
(ii) Designate flexible receipt and delivery points within the Pipeline system, subject to operational feasibility and the availability of capacity at the requested points; and
(iii) Change designated receipt and delivery points on a nomination-cycle basis, providing operational flexibility to respond to changing market conditions and production patterns.
K. Greenhouse Gas Emission Cost Recovery
Ridgeline proposes a greenhouse gas ("GHG") cost tracker and passthrough mechanism, addressing Deficiency Item 13 of the Deficiency Letter. This mechanism would allow Ridgeline to recover the costs of compliance with state-level and potential future federal carbon emission regulations through a surcharge mechanism, as follows:
(i) Ridgeline would file an annual GHG cost report with the Commission, documenting the GHG-related compliance costs incurred during the prior twelve-month period, including carbon tax payments, emission allowance purchase costs, methane monitoring and abatement costs, and any other costs directly attributable to GHG regulation.
(ii) The GHG cost surcharge would be calculated by dividing the total GHG-related costs by the applicable billing determinants, and the surcharge would be applied to firm and interruptible transportation rates on a per-Dth basis.
(iii) Shippers would be provided with at least 60 days' advance notice of any proposed GHG cost surcharge filing, and would have the opportunity to review and challenge the filing before the Commission.
This mechanism would ensure that GHG compliance costs are recovered on a current basis and are not deferred for recovery in a future rate case, while also providing shippers with transparency and regulatory oversight.
L. Order No. 2222 Distributed Energy Resource Provisions
Ridgeline proposes to include tariff provisions addressing the implications of the Commission's Order No. 2222 regarding distributed energy resource ("DER") aggregation, addressing Deficiency Item 14 of the Deficiency Letter. These provisions are particularly relevant in light of the 250 megawatt wind energy portfolio currently under development by DEH, Ridgeline's parent company. The tariff provisions would address the coordination between Ridgeline's pipeline operations and DER aggregation activities, including:
(i) Provisions ensuring that DER aggregation does not adversely affect the reliability or operational integrity of the Ridgeline Pipeline System;
(ii) Coordination protocols for nominations, scheduling, and balancing in circumstances where DER aggregation affects gas transportation volumes; and
(iii) Information sharing requirements between Ridgeline and DER aggregators to support reliable pipeline operations.
V. Proposed Settlement Terms — Interconnection
A. Physical Interconnection Configuration
The proposed interconnection between the Ridgeline Pipeline System and the ATPC pipeline system would be located at the Wetzel County Interconnect, at milepost 0.0 of the Ridgeline system. The interconnection would tie into ATPC's existing 30-inch-diameter mainline at ATPC Milepost 412.6 in Wetzel County, West Virginia.
The physical interconnection facilities would include the following principal components:
(i) New Meter Station. A new metering station would be constructed at the interconnection point to measure the volume, pressure, temperature, and quality of gas flowing between the two pipeline systems. The meter station would be equipped with three runs of 12-inch-diameter ultrasonic flow meters, providing redundancy and the ability to maintain measurement accuracy across a wide range of flow rates. The ultrasonic meters would be capable of bidirectional measurement, accommodating gas flows from ATPC's system to Ridgeline's system and, if operationally necessary, from Ridgeline's system to ATPC's system.
(ii) Pig Launcher/Receiver. A pig launcher and receiver facility would be installed at the interconnection point to facilitate pipeline inspection and maintenance operations, including the running of inline inspection tools ("smart pigs") for pipeline integrity assessment.
(iii) Gas Chromatographs. Gas chromatographs would be installed at the meter station to provide real-time analysis of gas quality, including heating value, specific gravity, and compositional analysis. The gas chromatographs would ensure that gas delivered at the interconnection point meets the quality specifications set forth in Ridgeline's tariff.
(iv) SCADA Integration. The interconnection facilities would be fully integrated with both Ridgeline's and ATPC's supervisory control and data acquisition ("SCADA") systems, enabling real-time monitoring and control of gas flows, pressures, and operational parameters at the interconnection point.
The design capacity of the interconnection facilities would be 800 MMcf/d bidirectional, with the capability to be expanded to 1.2 Bcf/d (matching the full design capacity of the Ridgeline Pipeline System) through the addition of meter runs and related equipment.
B. Interconnection Facilities Cost and Allocation
The total estimated cost of the interconnection facilities is $22.3 million. This estimate includes the design, engineering, procurement, construction, and commissioning of all facilities described in Section V.A above, as well as the necessary modifications to ATPC's existing mainline facilities at Milepost 412.6.
Ridgeline proposes the following cost allocation:
Ridgeline's proposed cost allocation is based on cost-causation principles, consistent with Commission precedent under Order No. 2004 and its progeny. Ridgeline contends that the majority of the interconnection facilities — including the metering station, gas chromatographs, SCADA integration, and necessary mainline modifications — are necessitated primarily by ATPC's existing system configuration and physical infrastructure at Milepost 412.6. Moreover, these facilities will serve not only Ridgeline's shippers but also ATPC's shippers, who will benefit from the additional supply source and market access provided by the interconnection. The cost-causation analysis therefore supports allocating a greater share of the interconnection costs to ATPC.
ATPC, in contrast, advocates a 50/50 cost allocation, which would result in each party bearing $11.15 million of the total $22.3 million cost. ATPC argues that the interconnection is a joint facility serving both systems equally and that a 50/50 split best reflects the mutual benefits of the interconnection. CMGA has supported ATPC's position on cost allocation.
Ridgeline's settlement position is that the cost-causation analysis supports a cost allocation more favorable to Ridgeline than 50/50. However, Ridgeline recognizes the importance of reaching a comprehensive settlement and is willing to adjust its proposed cost allocation in the context of an overall settlement that addresses rate and tariff issues on mutually acceptable terms. Ridgeline's proposed phased cost allocation mechanism, described in Section VII.C of this Offer, provides a framework for bridging the gap between the parties' positions.
C. Target In-Service Date
The original target in-service date for the interconnection facilities was the fourth quarter of 2023. This target date has been delayed pending resolution of the above-captioned proceedings. No construction work has commenced on the interconnection facilities, as Ridgeline does not have the necessary authorizations to proceed.
Ridgeline proposes that the Interconnection Agreement include a target in-service date of twelve (12) months from the effective date of a settlement or FERC order authorizing the interconnection. This timeline is based on Ridgeline's engineering assessment of the time required to complete detailed engineering design, procurement of major equipment (particularly the ultrasonic flow meters and gas chromatographs, which have current lead times of 6–8 months), construction, and commissioning. Ridgeline commits to working diligently with ATPC to achieve the earliest practicable in-service date.
VI. Positions of Other Parties — Summary and Response