memo-flu-tracker-mechanism.docx

1016-00005 · Dunmore Energy Holdings · Tariff Redesign

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MEMORANDUM

TO:

Patricia Dunmore, Founder & Chairperson, Dunmore Energy Holdings Ltd.

James K. Winfield, CEO & President, Ridgeline Midstream Services LLC

Dr. Natasha Orlov, Director of Rates & Regulatory, Ridgeline Midstream Services LLC

FROM:

George Trujillo, Responsible Partner, Calderwood & Harkness LLP

Brett Callahan, Lead Associate, Calderwood & Harkness LLP

DATE: July 14, 2023

RE: Design of Fuel-Use and Lost-and-Unaccounted-For Gas (FL&U) Tracker Mechanism — Addressing FERC Deficiency Item No. 2, Docket Nos. RP22-847-000 and RP22-847-001

C&H Matter No.: 1016-00005

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I. Executive Summary

This memorandum addresses Deficiency Item No. 2 identified in the January 19, 2023 Deficiency Letter issued by the Federal Energy Regulatory Commission's ("FERC" or the "Commission") Office of Energy Market Regulation ("OEMR"), authored by Dr. Miriam Okafor, Lead Economic Analyst, which requires Ridgeline Midstream Services LLC ("Ridgeline" or the "Pipeline") to include a fuel-use and lost-and-unaccounted-for gas ("FL&U") tracker mechanism in its proposed FERC Gas Tariff, Original Volume No. 1 (the "Tariff"). The Deficiency Letter identified the absence of such a mechanism as a material deficiency in the original tariff filing and directed Ridgeline to propose a tracker that would allow for periodic adjustment of fuel retention percentages to reflect actual fuel consumption and system losses.

Ridgeline's original tariff filing of May 12, 2022 did not include any FL&U tracker or fuel retention mechanism. Instead, fuel costs were embedded in the test-year cost of service of $97.36 million as a component of operations and maintenance ("O&M") expense, without a separate tracking or true-up provision. This approach, while not per se impermissible, is inconsistent with the prevailing practice among FERC-jurisdictional interstate natural gas pipelines and exposes both the Pipeline and its shippers to the risk of fuel cost over-recovery or under-recovery over time. FERC Staff's identification of this deficiency was not unexpected; Calderwood & Harkness advised Ridgeline at the time of the original filing that the absence of an FL&U tracker could be raised as a concern during the review process, and the Deficiency Letter confirmed that assessment.

Based on our review of FERC policy, Commission precedent, and the operational characteristics of the Ridgeline Pipeline System, this memorandum recommends the adoption of a percentage-based in-kind fuel retention mechanism with an annual true-up filing. Under this mechanism, Ridgeline would retain a stated percentage of the gas tendered by shippers for transportation to cover compressor fuel consumption and system losses, with the retention percentage subject to annual adjustment through a true-up filing that compares actual FL&U quantities to retained quantities and proposes adjustments for the subsequent period. This structure is consistent with the prevailing approach approved by FERC for FERC-jurisdictional interstate natural gas pipelines and is the mechanism most likely to secure Staff support and intervenor acceptance.

The proposed mechanism is being developed in coordination with Braswell Energy Consulting Group LLC ("Braswell"), a regulatory consulting firm based in McLean, Virginia (engagement no. BEC-2023-0041, lead consultant Dr. Raymond Braswell, former FERC economist). Braswell was retained by Dunmore Energy Holdings Ltd. ("DEH") on April 15, 2023, as part of the comprehensive tariff redesign effort to address all fourteen deficiency items identified in the January 19, 2023 Deficiency Letter. Dr. Braswell's team is currently analyzing actual operating data from the Ridgeline Pipeline System for the period October 1, 2021 through March 31, 2023 (approximately eighteen months of operations) to derive the proposed initial FL&U retention percentage.

The FL&U tracker provisions will be incorporated into the redesigned tariff currently being prepared for filing by the February 21, 2025 deadline established by Administrative Law Judge ("ALJ") Clara Whitfield's procedural order of March 4, 2024. That order, which granted Ridgeline's third request for an extension of time, imposed certain conditions on the extension, including the filing of quarterly status reports with the ALJ's office. The FL&U tracker is one of several critical tariff design elements that must be resolved before the redesigned tariff is ready for filing.

This memorandum provides our analysis of the applicable FERC policy and precedent (Section III), our recommended mechanism design (Section IV), our analysis of key design considerations (Section V), our assessment of the impact on ongoing settlement negotiations (Section VI), and our recommended next steps (Section IX). The memorandum is intended to provide a framework for discussion among the Ridgeline management team, Braswell, and Calderwood & Harkness as we move toward finalization of the FL&U tracker design over the coming months.

II. Background

A. The Ridgeline Pipeline System — Operational Context for FL&U

An understanding of the physical and operational characteristics of the Ridgeline Pipeline System is essential to the design of an appropriate FL&U tracker mechanism, because the magnitude and composition of fuel use and system losses are directly determined by system configuration, compression capacity, throughput levels, and measurement infrastructure.

The Ridgeline Pipeline System (the "System" or the "Pipeline") consists of 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 pipeline was designed with a maximum daily capacity of 1.2 billion cubic feet per day ("Bcf/d"), equivalent to 1,200,000 dekatherms per day ("Dth/d") at an assumed BTU content of 1,000 BTU per cubic foot. The System currently processes throughput of approximately 680 million cubic feet per day ("MMcf/d"), representing a utilization rate of approximately 56.67% of design capacity. This utilization rate is relevant to the FL&U tracker design, as discussed in detail in Section V.D below, because compressor fuel consumption as a percentage of throughput tends to be higher at lower utilization rates due to the fixed overhead associated with compressor station operations.

The System includes three compressor stations: the Wetzel Station (located near the Wetzel County Interconnect at the southern terminus of the pipeline), the Mannington Station (located at approximately the midpoint of the pipeline in Marion County, West Virginia), and the Waynesburg Station (located at the northern terminus of the pipeline in Greene County, Pennsylvania). The three stations have an aggregate installed compression capacity of 45,000 horsepower ("HP"). All three compressor stations are equipped with gas-fired reciprocating compressor units, meaning that the compressors consume natural gas directly from the pipeline as fuel. This is a significant factor in FL&U tracker design, because gas-fired compression creates a direct in-kind fuel requirement that is naturally suited to recovery through an in-kind retention mechanism. Compressor fuel consumption constitutes the primary and largest component of FL&U on the Ridgeline system. Additional gas losses on the system are attributable to measurement differentials between receipt and delivery meters, blowdowns conducted for maintenance and emergency operations, venting during compressor station operations, fugitive emissions, and other operational factors that collectively constitute the "lost and unaccounted for" component of FL&U.

The Pipeline was constructed at a total cost of approximately $587.2 million and was placed in service on October 1, 2021. As of the date of the January 19, 2023 Deficiency Letter, the Pipeline had been in operation for approximately eighteen months. The limited operating history of the System is relevant to the FL&U tracker design because FERC precedent recognizes that new pipelines may not yet have sufficient operating data to establish a permanent FL&U retention percentage, and the Commission has approved various transitional mechanisms to address this issue, as discussed in Section III.B below.

Ridgeline is a wholly-owned subsidiary of Dunmore Energy Holdings Ltd. ("DEH"), a Cayman Islands exempted limited company (Company Registration No. CR-381204), controlled by Patricia Dunmore, who holds a 72% equity interest in DEH. DEH is the ultimate parent entity of the Ridgeline corporate family and has retained Calderwood & Harkness LLP to represent Ridgeline in the FERC tariff proceeding. DEH has also separately engaged Braswell Energy Consulting Group LLC to provide regulatory consulting and rate design services in connection with the tariff redesign.

At its southern terminus, Ridgeline has proposed an interconnection with Appalachian Trunk Pipeline Company, LLC ("ATPC") at the Wetzel County Interconnect, located at ATPC Milepost 412.6. The interconnection has been designed with an initial capacity of 800 MMcf/d bidirectional, expandable to 1.2 Bcf/d, at a total interconnection facilities cost of $22.3 million. The interconnection authorization is being sought concurrently with the tariff approval under NGA § 7, in Docket No. RP22-847-001. The interconnection metering facilities at the Wetzel County Interconnect — which include three runs of 12-inch ultrasonic flow meters and gas chromatographs — serve as the primary receipt-point measurement infrastructure for the Pipeline and will provide the foundational measurement data for FL&U calculations. The accuracy and calibration of these meters directly affect the determination of the "lost and unaccounted for" component of FL&U, and the allocation of measurement losses between the Ridgeline and ATPC systems at the interconnection point is a matter of concern to ATPC, as discussed in Section III.C below.

B. The Original Tariff Filing and Deficiency Identification

Ridgeline filed its application for initial tariff rate and interconnection authorization on May 12, 2022, in Docket Nos. RP22-847-000 (tariff rate proceeding) and RP22-847-001 (interconnection authorization proceeding), under Sections 4 and 7 of the Natural Gas Act ("NGA"), 15 U.S.C. §§ 717c and 717f, and the Commission's implementing regulations at 18 C.F.R. Parts 154, 157, and 284. The filing sought authorization to provide open-access firm and interruptible natural gas transportation service on the Ridgeline Pipeline System at just and reasonable rates determined through the Commission's cost-of-service methodology.

The original filing proposed a recourse rate of $0.2265 per Dth, composed of a reservation charge of $0.2223 per Dth and a usage charge of $0.0042 per Dth, calculated on the basis of a 100% load factor and levelized over a 25-year cost recovery period. The rate was derived from a rate base as filed of $612.40 million, consisting of net plant of $563.71 million, working capital of $18.64 million, a deduction for accumulated deferred income taxes ("ADIT") of $12.45 million, and other rate base items of $42.50 million. The total cost of service as filed was $97.36 million.

Critically, fuel costs associated with compressor fuel consumption on the system were included within the test-year O&M expense of $12.44 million. The original filing did not propose any separate FL&U tracker mechanism or fuel retention provision. Under this approach, fuel costs would have been recovered entirely through the per-Dth transportation rate, with no mechanism for adjusting fuel cost recovery to reflect actual fuel consumption. This approach has the disadvantage of locking in a fuel cost assumption at the level embedded in the test-year cost of service, without any mechanism for adjustment if actual fuel consumption deviates from the assumed level. As noted above, Calderwood & Harkness had advised Ridgeline prior to the original filing that this approach, while not categorically impermissible, was inconsistent with prevailing industry practice and risked a deficiency finding. The decision to file without an FL&U tracker was made by Ridgeline management in the interest of expediting the initial filing, with the understanding that an FL&U tracker could be added in response to any Commission concerns.

On January 19, 2023, FERC's Office of Energy Market Regulation issued a Deficiency Letter identifying fourteen deficiency items in the original tariff filing. The letter was authored by Dr. Miriam Okafor, Lead Economic Analyst for the proceeding, and issued under the signature of the Director of OEMR. Deficiency Item No. 2 specifically stated that Ridgeline had failed to include a fuel-use and lost-and-unaccounted-for gas ("FL&U") tracker mechanism in its proposed tariff and directed Ridgeline to propose a mechanism for tracking and adjusting fuel retention to reflect actual fuel consumption and system losses. The Deficiency Letter described the absence of an FL&U tracker as a material deficiency that must be cured before the tariff could be accepted for filing.

Ridgeline filed a partial response to the Deficiency Letter on March 15, 2023, addressing eight of the fourteen deficiency items (Items 1 through 4 and Items 7 through 10). With respect to Deficiency Item No. 2, the partial response provided a preliminary overview of an FL&U framework, describing in general terms Ridgeline's intent to adopt an in-kind fuel retention mechanism with periodic true-up. However, FERC Staff indicated, through informal communications with Calderwood & Harkness, that a more fully developed mechanism — including specific retention percentages, detailed true-up procedures, and draft tariff language — would be required before the deficiency could be considered cured. The present memorandum is intended to advance the development of that more fully developed mechanism.

ALJ Whitfield stayed the procedural schedule on February 6, 2023, pending completion of the tariff redesign effort necessitated by the Deficiency Letter. The stay was granted at the joint request of the parties, with the understanding that Ridgeline would work diligently to address all fourteen deficiency items and file a redesigned tariff within a reasonable period.

C. Procedural Posture

The procedural posture of the proceeding is relevant to the FL&U tracker design because the timeline for completing the redesigned tariff, the positions of the intervenors, and the settlement discussions all affect the approach that Ridgeline should take in designing and proposing the tracker mechanism.

The proceeding has been largely dormant since September 8, 2023, when ALJ Whitfield granted Ridgeline's second request for an extension of time to complete the tariff redesign. A third extension was subsequently granted on March 4, 2024, with certain conditions. Specifically, the March 4, 2024 order established a firm filing deadline of February 21, 2025 for the redesigned tariff and imposed a requirement that Ridgeline file quarterly status reports with the ALJ's office detailing the progress of the tariff redesign and the status of settlement discussions. The quarterly status report requirement reflects the ALJ's concern about the extended duration of the proceeding and her desire to ensure that the parties are making meaningful progress toward resolution.

Settlement discussions have been ongoing before Settlement Judge Howard Margolis since the early stages of the proceeding, but have not yet yielded a comprehensive settlement. Four settlement conferences have been held: November 30, 2022; March 8, 2023; July 12, 2023; and January 18, 2024. While the conferences have been productive in narrowing the issues in dispute and fostering communication among the parties, no settlement has been reached. The parties remain approximately $0.058 per Dth apart on the overall transportation rate, with Ridgeline's current revised proposed rate at $0.3140 per Dth and the combined position of ATPC and the Mountainside Gas Producers Coalition ("MGPC") at approximately $0.2560 per Dth. The rate gap is driven primarily by disputes over the appropriate return on equity ("ROE"), cost allocation methodology, and billing determinant (load factor), rather than by the FL&U tracker issue specifically. However, as discussed in Section VI, the FL&U tracker design may have a marginal impact on effective transportation costs and could serve as a useful point of compromise in the broader settlement discussions.

The following parties have intervened in the proceeding:

• Appalachian Trunk Pipeline Company, LLC ("ATPC"), the interconnecting pipeline at the Wetzel County Interconnect. ATPC is represented by the law firm of Kellner, Royce & Dillard LLP, with William Pratt serving as lead counsel. ATPC's senior regulatory officer, Sandra K. Fenton, has been the primary contact for settlement discussions. ATPC's intervention focuses on the terms and conditions of the interconnection at the Wetzel County Interconnect, cost allocation at the interconnection point, and the impact of Ridgeline's rates on ATPC's shippers.

• Mountainside Gas Producers Coalition ("MGPC"), a coalition of fourteen natural gas production companies operating in the Appalachian Basin. MGPC is represented by the law firm of Whitmore & Sable LLP, with Rebekah Montague serving as lead counsel. MGPC's Executive Director is Calvin Dreyer, and its rate expert is Dr. Eleanor Vasquez. MGPC's intervention focuses on the reasonableness of Ridgeline's proposed rates, cost allocation, and shipper protections, including the design of the FL&U tracker.

• Clearwater Municipal Gas Authority ("CMGA"), a municipal gas utility serving residential and commercial customers in the Clearwater, Pennsylvania area. CMGA is represented by Fordham Municipal Law Group PC, with Stephen Greer serving as lead counsel. CMGA's General Manager is Dennis Ott. CMGA's intervention focuses on the downstream impact of Ridgeline's rates and tariff provisions on municipal end-users.

FERC Trial Staff is participating actively in the proceeding. The Lead Trial Attorney is Jonathan Briggs, and the Lead Economic Analyst is Dr. Miriam Okafor. Trial Staff's positions on the various deficiency items are not yet fully developed in the record, but Staff's identification of the FL&U tracker deficiency indicates a clear expectation that the redesigned tariff will include a transparent, auditable tracker with annual true-up and clear separation of fuel-use and L&U components, consistent with the approach that FERC has approved in recent pipeline tariff proceedings.

III. FERC Policy and Precedent on FL&U Tracker Mechanisms

A. Regulatory Framework

The Commission has long recognized that fuel costs and gas losses on interstate natural gas pipelines are inherently variable and difficult to predict with precision. Fuel consumption is affected by throughput volumes, ambient temperature, gas quality, compressor efficiency, and other operational factors that fluctuate over time. Similarly, the "lost and unaccounted for" component of system losses — encompassing measurement differentials, blowdowns, fugitive emissions, venting, and other factors — varies based on system conditions, maintenance activities, and operational events. Because of this variability, the Commission has acknowledged that embedding a fixed fuel cost assumption in the cost of service, without any mechanism for periodic adjustment, creates an inherent risk of over-recovery or under-recovery that is inequitable to either the pipeline or its shippers.

FL&U tracker mechanisms address this concern by allowing pipelines to adjust their fuel retention percentages periodically — typically on an annual basis — to reflect actual fuel consumption and system losses. The tracker mechanism ensures that shippers bear only the actual cost of fuel consumed and gas lost in providing transportation service, while allowing the pipeline to recover its legitimate fuel costs without bearing the risk of under-recovery due to unanticipated changes in fuel consumption patterns.

The regulatory framework governing FL&U tracker mechanisms is grounded in the following authorities:

• Natural Gas Act § 4, 15 U.S.C. § 717c, which requires that all rates and charges for the transportation of natural gas in interstate commerce be just and reasonable. The Commission has interpreted this requirement as supporting FL&U tracker mechanisms because such mechanisms promote accuracy in fuel cost recovery and prevent unjust enrichment or undue burden.

• 18 C.F.R. Part 154, which establishes the general requirements for filing tariffs and rate schedules with the Commission. FL&U tracker provisions are included in the General Terms and Conditions ("GT&C") section of a pipeline's tariff, subject to the formatting and filing requirements of Part 154.

• 18 C.F.R. Part 284, Subpart G, which establishes the requirements for open-access transportation services on interstate natural gas pipelines. The open-access requirements of Part 284 mandate that pipelines provide non-discriminatory transportation service under tariff provisions that are transparent and accessible to all shippers. FL&U tracker mechanisms, with their reporting and disclosure requirements, are consistent with these transparency objectives.

• FERC Policy Statements and Orders, through which the Commission has articulated its policy preferences for FL&U tracker design. While the Commission has not issued a single comprehensive policy statement on FL&U trackers, its preferences have been expressed through a substantial body of orders approving FL&U mechanisms in individual pipeline tariff proceedings. The consistent themes emerging from this body of precedent are: (i) FL&U trackers are strongly encouraged for interstate natural gas pipelines; (ii) in-kind percentage retention is the preferred structure; (iii) separate tracking and reporting of fuel-use and L&U components is required; (iv) periodic true-up filings — typically annual — are necessary to ensure accuracy; and (v) shippers must have access to FL&U data and audit rights to verify the pipeline's calculations.

The overarching principle underlying the Commission's approach to FL&U trackers is that the mechanism should ensure that neither the pipeline nor its shippers bear the risk of fuel cost over-recovery or under-recovery on a sustained basis. The tracker achieves this objective by establishing a retention percentage based on the best available data, and then periodically adjusting that percentage to reflect actual experience. Any over-recovery or under-recovery during a true-up period is corrected through credits or surcharges in the subsequent period, ensuring that the cumulative impact of the tracker on shippers reflects actual, rather than estimated, fuel costs.

B. Survey of FERC Precedent

A thorough review of FERC orders approving FL&U tracker mechanisms for interstate natural gas pipelines confirms that the mechanism recommended in this memorandum — an in-kind percentage retention mechanism with annual true-up — is consistent with prevailing Commission precedent. A detailed summary of FL&U tracker mechanisms approved by FERC for comparable Appalachian Basin and national interstate pipelines is provided in Appendix A to this memorandum. The following discussion highlights the most relevant precedent.

In-Kind Percentage Retention vs. Cash Reimbursement. The Commission has approved both in-kind percentage retention mechanisms and cash reimbursement mechanisms for FL&U recovery on interstate pipelines. Under an in-kind mechanism, the pipeline retains a stated percentage of the gas tendered by shippers for transportation, and this retained gas is consumed as compressor fuel or applied to offset system losses. Under a cash reimbursement mechanism, shippers deliver the full quantity of gas tendered and are separately invoiced for fuel costs based on the pipeline's actual fuel expenditures. The Commission has expressed a clear and consistent preference for in-kind retention mechanisms, finding them to be more administratively efficient and less susceptible to commodity price risk than cash reimbursement alternatives. In-kind retention eliminates the need to value fuel gas at a market index price for billing purposes, reduces the volume of monetary transactions between the pipeline and its shippers, and aligns the pipeline's fuel recovery with its actual gas-fired compression operations. The overwhelming majority of FL&U trackers approved by the Commission for Appalachian Basin pipelines utilize the in-kind retention structure.

True-Up Filing Frequency. The Commission has approved FL&U trackers with annual, semi-annual, and quarterly true-up filing periods, depending on the characteristics of the individual pipeline system. The majority of approved trackers utilize annual true-up filings, typically filed on or before a specified date (often April 1 or May 1) covering the prior calendar year. Semi-annual true-up periods have been approved for pipeline systems with high throughput variability or seasonal demand patterns that create significant fluctuations in fuel consumption from one half of the year to the other. Quarterly true-up periods are rare and have generally been approved only for new pipelines with very limited operating history or for systems undergoing significant operational changes. For the Ridgeline Pipeline System, an annual true-up period is appropriate as a long-term structure, though we recommend a transitional semi-annual true-up period during the initial years of operation, as discussed in Section V.D below.

Separate Tracking of Fuel Use and L&U. The Commission has consistently required pipelines to track and report the fuel-use and lost-and-unaccounted-for components of FL&U separately, even where the two components are combined into a single retention percentage applied to shipper quantities. This requirement serves several purposes: it allows the Commission and shippers to monitor the pipeline's operational efficiency; it facilitates identification of abnormal system losses that may warrant investigation; and it supports environmental reporting obligations related to fugitive emissions and venting. The Commission has directed that the fuel-use component be calculated based on actual metered fuel consumption at each compressor station, while the L&U component is typically calculated as the residual difference between total metered receipts and total metered deliveries after accounting for fuel consumption, changes in line pack, and gas in storage.

Treatment of Gas-Fired vs. Electric-Driven Compression. The Commission's treatment of FL&U differs depending on whether a pipeline's compressor stations are gas-fired or electric-driven. For gas-fired compressor stations, the fuel consumed is natural gas drawn directly from the pipeline, and in-kind retention is the natural and appropriate recovery mechanism. For electric-driven compressor stations, the fuel cost is an electricity expense rather than a gas consumption, and recovery through the cost of service (as an O&M expense) or through a cash-based tracker is more appropriate. Because all three of Ridgeline's compressor stations are gas-fired, the in-kind retention mechanism is directly applicable to the full fuel-use component of FL&U. However, as discussed in Section V.C, we recommend including a tariff provision to accommodate potential future changes in compression technology.

FL&U Retention Percentage Ranges. The Commission has approved a wide range of FL&U retention percentages depending on system characteristics. For Appalachian Basin pipelines with configurations broadly comparable to Ridgeline — that is, pipelines of similar length (100–300 miles), diameter (20–36 inches), and compression capacity (30,000–75,000 HP) — approved FL&U retention percentages have generally fallen in the range of 1.5% to 4.0%. The fuel-use component typically accounts for the majority of the retention percentage, with the L&U component typically in the range of 0.2% to 1.0%. The specific percentage depends on factors including pipeline length, number and capacity of compressor stations, compressor efficiency, throughput levels, and terrain. A detailed table of approved FL&U percentages for comparable pipelines is provided in Appendix A.

Treatment of New Pipelines with Limited Operating History. The Commission has recognized that new pipelines may not have sufficient operating data to establish a definitive FL&U retention percentage at the time of their initial tariff filing. In such cases, the Commission has approved various approaches, including: (i) establishing an initial retention percentage based on the available operating data, however limited, with the expectation that the annual true-up process will refine the percentage over time; (ii) establishing an initial retention percentage based on engineering estimates derived from compressor manufacturer performance data and pipeline hydraulic models, subject to subsequent adjustment based on actual operating data; and (iii) establishing a range for the initial retention percentage and allowing the true-up process to converge on the appropriate level. Given that Ridgeline will have approximately three years of operating data by the February 21, 2025 filing deadline, we believe that the initial retention percentage can be based primarily on actual operating data, supplemented as necessary by engineering estimates for periods of atypical operations.

C. Intervenor Positions on FL&U

While the FL&U tracker has not been a central point of contention in the proceeding to date, each intervenor has expressed views — directly or indirectly — that are relevant to the mechanism design.

ATPC. ATPC's protest, filed on August 15, 2022, did not directly address the FL&U issue. ATPC's primary concerns relate to cost allocation at the Wetzel County Interconnect, the terms of the interconnection agreement, and the impact of Ridgeline's proposed rates on ATPC's system and shippers. However, the FL&U tracker is relevant to ATPC's interests in at least one important respect: the allocation of gas measurement losses at the interconnection metering station. The Wetzel County Interconnect is the primary receipt point for gas entering the Ridgeline system from ATPC's system, and measurement differentials at this point — arising from differences in metering equipment, calibration standards, gas quality, and measurement methodologies between the two systems — contribute to the L&U component of FL&U on the Ridgeline system. ATPC has expressed interest, through its regulatory officer Sandra K. Fenton and its counsel William Pratt, in allocating a portion of the interconnection-point measurement losses to Ridgeline's L&U account rather than to ATPC's system. This allocation question will need to be addressed in the FL&U tracker design, potentially through a provision specifying the methodology for determining the measurement baseline at the interconnection point and allocating any measurement differentials between the two systems.

MGPC. MGPC, through its Executive Director Calvin Dreyer and its rate expert Dr. Eleanor Vasquez, has generally expressed support for the inclusion of an FL&U tracker in Ridgeline's tariff, recognizing that a tracker mechanism is standard industry practice and promotes fair cost recovery. However, MGPC has advocated for two specific design features: (i) a lower initial retention percentage than what Ridgeline might otherwise propose, reflecting MGPC's general position that the pipeline's costs should be conservatively estimated to protect shipper interests; and (ii) more frequent true-up filings, specifically semi-annual rather than annual, to provide more timely correction of any over-recovery or under-recovery. Dr. Vasquez's testimony in other proceedings has consistently favored more frequent true-up periods as a shipper protection measure, and we anticipate that she will take a similar position in this proceeding. We should be prepared to address MGPC's concerns in the tariff design and in the supporting testimony.

CMGA. CMGA, through its General Manager Dennis Ott and its counsel Stephen Greer, has aligned its position generally with ATPC's position in the proceeding. CMGA's primary concern is the downstream impact of Ridgeline's rates and tariff provisions on ATPC's system, which ultimately affects the delivered cost of gas to CMGA's municipal customers. With respect to FL&U, CMGA is concerned about the extent to which FL&U charges imposed by Ridgeline at the Wetzel County Interconnect will flow through ATPC's system and be passed on to CMGA and its end-use customers. While this is primarily a concern about the overall level of FL&U charges rather than the tracker mechanism design, it reinforces the importance of establishing a reasonable and well-supported initial retention percentage.

FERC Trial Staff. FERC Trial Staff, led by Trial Attorney Jonathan Briggs and Lead Economic Analyst Dr. Miriam Okafor, identified the absence of an FL&U tracker as Deficiency Item No. 2 in the January 19, 2023 Deficiency Letter. Staff's position on the specific design of the FL&U tracker has not been formally articulated in the record, but based on our informal communications with Staff and our review of Staff positions in comparable proceedings, we expect that Staff will favor a transparent, auditable tracker mechanism with annual true-up filings, clear separation of fuel-use and L&U components, comprehensive reporting requirements (including monthly EBB postings), and shipper audit rights. Our recommended mechanism design is intended to be responsive to these anticipated Staff preferences.

IV. Proposed FL&U Tracker Mechanism Design

A. Structure Overview

Based on our review of FERC policy and precedent, the operational characteristics of the Ridgeline Pipeline System, and the positions of the intervenors and FERC Staff, we recommend the following structure for the FL&U tracker mechanism:

Recommended Structure: An in-kind percentage retention mechanism applied to all gas tendered for transportation on the Ridgeline Pipeline System, under which Ridgeline retains a stated percentage of each shipper's scheduled quantities to cover compressor fuel consumption and system losses, with the retention percentage subject to annual adjustment through a true-up filing submitted to the Commission.

Under this mechanism, the FL&U retention percentage would be applied at the receipt point (Wetzel County Interconnect) or, at shipper election where operationally feasible, at the delivery point (Waynesburg Compressor Station). The retention percentage would be deducted from the shipper's scheduled quantities, so that the shipper's delivered quantity is the scheduled quantity less the FL&U retention. For example, if a shipper schedules 100,000 Dth for transportation and the FL&U retention percentage is 2.5%, the shipper would receive delivery of 97,500 Dth, with 2,500 Dth retained by Ridgeline for fuel and L&U purposes.

The tracker would separately track and report two distinct components:

1. Fuel Use (Compressor Fuel): The quantity of natural gas consumed as fuel in the operation of the three compressor stations on the Ridgeline Pipeline System (Wetzel Station, Mannington Station, and Waynesburg Station), measured by dedicated fuel gas meters installed at each compressor station.

2. Lost and Unaccounted For Gas (L&U): The residual difference between total metered receipts and total metered deliveries on the system, after accounting for fuel use, changes in line pack, and any gas stored or in transit. This component encompasses measurement differentials between receipt and delivery meters, blowdowns for maintenance and emergency operations, fugitive emissions, venting, and other operational system losses.

The combined initial FL&U retention percentage will be established based on the best available operating data from October 1, 2021 (the System's in-service date) through March 31, 2023, representing approximately eighteen months of operations. This data is currently being analyzed by Braswell Energy Consulting Group, as discussed in Section VII below.

B. Determination of Initial FL&U Retention Percentage

The determination of the initial FL&U retention percentage is a critical element of the tracker design. The initial percentage will serve as the baseline retention level from the effective date of the tariff until the first annual true-up filing, and will be the subject of scrutiny by FERC Staff, intervenors, and the Commission. It is therefore essential that the initial percentage be well-supported by actual operating data and consistent with percentages approved for comparable pipeline systems.

Fuel Use Component. The fuel-use component of the initial FL&U retention percentage will be calculated based on actual compressor fuel consumption at the three compressor stations (Wetzel, Mannington, and Waynesburg; 45,000 HP aggregate) during the available operating period, divided by total system throughput during the same period. Braswell is currently compiling and analyzing the compressor fuel consumption data from the individual fuel gas meters at each station. The fuel-use component reflects the gas consumed as compressor fuel to move gas through the pipeline, and is the largest and most directly measurable component of FL&U.

The calculation is straightforward in concept:

Fuel Use % = (Total Fuel Gas Consumed at All Compressor Stations during Period) ÷ (Total Gas Received at Receipt Point(s) during Period) × 100

However, the calculation must account for several factors that affect data quality and representativeness, including: variations in throughput levels during the test period; periods of compressor station outages or maintenance; changes in compressor operating conditions (speed, load, suction and discharge pressures); variations in gas quality (BTU content, specific gravity) that affect compressor performance; and any atypical operational events during the test period (such as blowdowns, pigging operations, or emergency shutdowns) that may have affected fuel consumption patterns.

L&U Component. The lost-and-unaccounted-for component will be calculated based on the difference between total measured receipts and total measured deliveries during the test period, after accounting for fuel use, changes in line pack (gas in the pipeline), and any gas stored or otherwise accounted for. The L&U component is a residual calculation and is inherently less precise than the fuel-use component, because it encompasses all sources of gas loss that are not directly attributable to fuel consumption. These sources include:

• Measurement uncertainty at receipt and delivery meters (i.e., the aggregate effect of small measurement errors across all metering points)

• Blowdowns for maintenance and emergency operations (gas vented or flared during planned and unplanned maintenance activities)

• Fugitive emissions from valves, fittings, flanges, and other equipment

• Venting from compressor station operations

• Other unaccounted system losses

Throughput Sensitivity. An important consideration in determining the initial FL&U retention percentage is the effect of the current throughput level on the percentage calculation. At the current throughput of approximately 680 MMcf/d (56.67% of the 1.2 Bcf/d design capacity), fuel use as a percentage of throughput is expected to be higher than it would be at higher utilization levels. This is because compressor stations have a certain minimum fuel consumption associated with maintaining operating pressure and temperature regardless of the actual volume of gas being transported — effectively a fixed overhead component of fuel consumption. As throughput increases toward design capacity, the fuel consumption increases at a rate less than proportional to throughput, meaning that the fuel-use percentage (expressed as a percentage of throughput) decreases. Consequently, the initial FL&U retention percentage derived from operating data at 56.67% utilization may be higher than the percentage that would apply at higher throughput levels.

The FL&U tracker design should incorporate provisions to address this throughput sensitivity, as discussed in Section V.D below. Specifically, we recommend a "ramp-up" provision that allows for more frequent true-up filings during the initial years of operation when throughput is expected to increase materially.

Proposed Initial Percentage. Based on the preliminary information available from Ridgeline's operating records and our survey of FL&U percentages approved for comparable Appalachian Basin pipelines (see Appendix A), we believe the initial combined FL&U retention percentage will fall in the range of 2.0% to 3.0%, subject to revision based on the final results of Braswell's analysis. Within this range, we anticipate that the fuel-use component will account for approximately 1.5% to 2.0% and the L&U component will account for approximately 0.5% to 1.0%. These preliminary estimates are consistent with the percentages approved for comparable systems in the Appalachian Basin, though the precise figures will depend on the actual operating data analysis being conducted by Braswell. We will refine these estimates as Braswell completes its analysis, with a target of October 2023 for the final FL&U analysis report.

Comparison to Comparable Pipelines. The proposed initial retention percentage should be benchmarked against FL&U percentages approved by FERC for comparable interstate natural gas pipelines. A detailed comparison table is provided in Appendix A. In general, pipelines of similar length, diameter, compression capacity, and throughput levels in the Appalachian Basin have been approved with FL&U retention percentages in the range of 1.5% to 4.0%, with the precise percentage depending on the specific system configuration and operating conditions. Ridgeline's preliminary estimate of 2.0% to 3.0% falls within this range and is consistent with FERC precedent.

C. Annual True-Up Filing Procedure

The annual true-up filing is the mechanism by which the FL&U retention percentage is periodically adjusted to reflect actual fuel consumption and system losses. The true-up process ensures that the retention percentage remains accurate over time and that any over-recovery or under-recovery during a given period is corrected in the subsequent period.

Filing Date and True-Up Period. We recommend that Ridgeline be required to file an annual true-up filing on or before April 1 of each year, covering the prior calendar year (January 1 through December 31). The April 1 filing date allows sufficient time after the close of the calendar year for Ridgeline to compile and verify the necessary operating data, prepare the true-up calculation, and submit the filing to the Commission. This filing date is consistent with the practice of the majority of interstate pipelines with annual FL&U true-up filings.

Filing Requirements. The true-up filing will be made pursuant to NGA § 4 and 18 C.F.R. § 154.403 (or equivalent applicable provision) as an abbreviated rate change filing. The filing will include the following components:

(a) Actual fuel consumed at each compressor station (Wetzel, Mannington, and Waynesburg) during the true-up period, reported in both volumetric (Mcf) and thermal (Dth) units, with supporting data from the fuel gas meters at each station;

(b) Actual L&U quantities by category during the true-up period, including a breakdown of measurement differentials, blowdowns, venting, fugitive emissions, and other identified sources of system loss, to the extent separately quantifiable;

(c) Total system throughput during the true-up period, reported in both volumetric and thermal units, based on metered receipts at the Wetzel County Interconnect and metered deliveries at the Waynesburg Compressor Station and any other delivery points;

(d) Calculation of the actual FL&U percentage for the true-up period, showing the fuel-use and L&U components separately;

(e) Proposed adjusted FL&U retention percentage for the upcoming period, based on the actual FL&U percentage for the true-up period and any known or anticipated changes in system operations that may affect fuel consumption or system losses in the upcoming period;

(f) Calculation of any over-recovery or under-recovery from the prior period, with a proposed disposition mechanism (credits or surcharges, as described below).

Notice to Shippers. The true-up filing will be subject to a minimum 30-day notice period prior to the effective date of any revised FL&U retention percentage, consistent with the NGA § 4 filing requirements. Ridgeline will provide notice to all firm and interruptible shippers of the proposed revised percentage, along with a summary of the true-up calculation, at least 30 days prior to the proposed effective date. This notice will be provided through the Ridgeline electronic bulletin board ("EBB") and by direct communication to each shipper of record.

FERC Review. The true-up filing will be subject to FERC review and acceptance. The Commission may accept the filing as submitted, accept the filing subject to conditions, suspend the filing for further review, or reject the filing. If the Commission accepts the filing, the revised FL&U retention percentage will take effect on the proposed effective date. If the Commission suspends the filing, interim rates may be charged subject to refund pending completion of the Commission's review. The true-up filing process is designed to be routine and largely non-controversial, as it is based on actual operating data and a well-defined calculation methodology. We do not anticipate significant Commission scrutiny of the true-up filings, provided that the underlying data is accurate, the calculation methodology is transparent, and the proposed retention percentage is consistent with the actual operating experience.

Disposition of Over-Recovery and Under-Recovery. A critical element of the true-up process is the disposition of any over-recovery or under-recovery that has accumulated during the true-up period — that is, the difference between the quantity of gas retained under the FL&U retention percentage and the actual quantity of gas consumed as fuel and lost on the system.

Over-Recovery (Actual FL&U Less Than Retained Percentage): If the actual FL&U quantity during the true-up period is less than the quantity of gas retained under the FL&U retention percentage, Ridgeline will have over-recovered — i.e., it will have retained more gas than was actually consumed as fuel and lost on the system. In this case, the excess gas will be returned to shippers pro rata based on each shipper's throughput during the true-up period. The return may be effected as an in-kind credit applied to the shipper's scheduled quantities in the subsequent period or, at the shipper's election, as a cash payment based on the average daily index price at the applicable trading hub (to be specified in the tariff) during the month in which the credit is issued. The in-kind credit option is preferred for administrative simplicity, but the cash option provides flexibility for shippers that may prefer a monetary credit.

Under-Recovery (Actual FL&U Greater Than Retained Percentage): If the actual FL&U quantity during the true-up period exceeds the quantity of gas retained under the FL&U retention percentage, Ridgeline will have under-recovered — i.e., it will not have retained sufficient gas to cover actual fuel consumption and system losses. In this case, Ridgeline will be entitled to recover the under-recovery through a surcharge applied to shipper quantities pro rata during the subsequent period, subject to FERC review and approval as part of the true-up filing. The surcharge will be expressed as an incremental increase in the FL&U retention percentage for the subsequent period, applied until the under-recovery balance is fully recovered.

D. Tariff Sheet Provisions

The FL&U tracker mechanism will be implemented through specific tariff provisions to be included in the General Terms and Conditions of the revised FERC Gas Tariff, Original Volume No. 1. The tariff language must be clear, precise, and comprehensive, setting forth all of the key terms of the tracker mechanism in a manner that provides both the pipeline and its shippers with certainty regarding their respective rights and obligations. The following is an overview of the key provisions to be included in the tariff. Detailed draft tariff language is being developed and will be circulated for review in the next phase of the tariff redesign process.

Definition of "Fuel Use." The tariff will define "Fuel Use" as the quantity of natural gas consumed as compressor fuel in the operation of the Ridgeline Pipeline System, measured by dedicated fuel gas meters installed at each compressor station. The definition will specify that fuel use encompasses all gas consumed by compressor units, auxiliary equipment, and other station equipment that draws gas from the pipeline for operating purposes.

Definition of "Lost and Unaccounted For Gas." The tariff will define "Lost and Unaccounted For Gas" (or "L&U") as the difference between total metered receipt quantities and total metered delivery quantities on the Ridgeline Pipeline System during a given period, after accounting for: (i) fuel use; (ii) changes in line pack (gas in the pipeline); and (iii) gas stored or otherwise accounted for. The definition will specify the categories of system losses that are encompassed within L&U, including measurement differentials, blowdowns, venting, fugitive emissions, and other operational system losses.

FL&U Retention Percentage. The tariff will state the initial combined FL&U retention percentage, broken down into the fuel-use and L&U components, and will specify that the retention percentage is subject to annual adjustment through the true-up filing process described above. The tariff will also specify the point of application (receipt point or delivery point) and the methodology for calculating the retention from each shipper's scheduled quantities.

Shipper Notification. The tariff will require Ridgeline to provide a minimum of 30 days' prior written notice to all firm and interruptible shippers of any proposed change in the FL&U retention percentage, whether through the annual true-up filing or through any other filing with the Commission. Notice will be provided through posting on the Ridgeline EBB and by direct communication to each shipper of record.

Monthly Reporting Requirements. The tariff will require Ridgeline to post on its EBB, on a monthly basis, the following information: (i) actual fuel consumption at each compressor station for the prior month; (ii) actual L&U quantities for the prior month; (iii) total system throughput for the prior month; (iv) cumulative over-recovery or under-recovery position for the current true-up period; and (v) such other information as the Commission may require. This monthly reporting requirement is coordinated with Deficiency Item No. 7 (EBB posting requirements) and is intended to provide shippers with timely access to FL&U data throughout the year, rather than only at the time of the annual true-up filing.

Shipper Audit Rights. The tariff will grant shippers the right to audit Ridgeline's FL&U records upon reasonable notice. The audit right will extend to all data underlying the FL&U retention percentage calculation, including fuel gas meter data, system throughput data, line pack data, blowdown records, maintenance logs, and meter calibration records. Audits will be conducted at the shipper's expense, at a mutually agreeable time and location, and subject to confidentiality protections for proprietary operating data.

Dispute Resolution. The tariff will include a mechanism for shippers to challenge Ridgeline's FL&U calculations. The dispute resolution process will provide for: (i) informal resolution through direct discussion between the shipper and Ridgeline's designated FL&U representative; (ii) if not resolved informally, written submission of the dispute to Ridgeline's management for review; and (iii) if still not resolved, referral to FERC for resolution under the Commission's dispute resolution procedures. The tariff will specify time periods for each stage of the dispute resolution process to ensure prompt resolution.

E. Interaction with Other Tariff Provisions

The FL&U tracker mechanism does not operate in isolation; it interacts with numerous other provisions of the Ridgeline tariff, and its design must be coordinated with those provisions to ensure internal consistency and avoid unintended consequences.

Relationship to the Proposed Recourse Rate. The FL&U retention is separate from and in addition to the transportation rate charged to shippers. Under the revised tariff design, the proposed recourse rate of $0.3140 per Dth (composed of a reservation charge of $0.3102 per Dth and a usage charge of $0.0038 per Dth) does not include fuel costs in the per-Dth rate. Rather, fuel costs are recovered in-kind through the FL&U retention percentage. This separation of fuel cost recovery from the transportation rate is a fundamental design principle of the FL&U tracker mechanism: shippers pay the transportation rate in cash for the capacity and service provided, and separately contribute gas in-kind to cover the fuel consumed and gas lost in providing that service. The tariff will clearly state this relationship to avoid any confusion or double-counting.

Removal of Fuel Cost Component from Cost of Service. An important corollary of the FL&U tracker is the removal of compressor fuel costs from the O&M expense component of the cost-of-service model. Under the original tariff filing, compressor fuel costs were included within the test-year O&M expense of $12.44 million. Under the redesigned tariff, compressor fuel costs are recovered in-kind through the FL&U tracker rather than through the cost of service. The revised O&M expense of $13.92 million (updated from the original $12.44 million to reflect revised operating cost estimates) and the revised total cost of service of $103.15 million must be adjusted to exclude fuel costs to the extent they are recovered through the FL&U tracker, to avoid double recovery. The Braswell team is coordinating this adjustment as part of the comprehensive cost-of-service model revision, and Calderwood & Harkness will review the revised model to confirm that fuel costs are properly excluded.

Coordination with the IT Rate (Deficiency Item No. 3). Interruptible transportation ("IT") shippers on the Ridgeline system will be subject to the same FL&U retention percentage as firm transportation shippers. This is consistent with FERC precedent, which generally requires that FL&U retention be applied on a non-discriminatory basis to all gas transported on the system, regardless of whether the transportation is provided under firm or interruptible rate schedules. The IT rate design, which is the subject of Deficiency Item No. 3, will incorporate the FL&U tracker by reference to the FL&U provisions in the General Terms and Conditions.

Coordination with NAESB WGQ Version 3.2 Standards (Deficiency Item No. 6). The FL&U reporting and nomination processes must comply with the applicable standards of the North American Energy Standards Board Wholesale Gas Quadrant ("NAESB WGQ") Version 3.2, as required by the Commission. Specifically, the FL&U retention must be integrated into the nomination and scheduling processes so that shippers' confirmed quantities reflect the deduction of the FL&U retention percentage. The EBB posting of FL&U data must also comply with NAESB standards for data formatting, timing, and accessibility.

Coordination with Capacity Release Provisions (Deficiency Item No. 5). Under capacity release arrangements, a releasing shipper's firm capacity may be acquired by a replacement shipper through the Commission's capacity release mechanism. The FL&U retention percentage will apply to the replacement shipper's scheduled quantities in the same manner as it applies to the releasing shipper's quantities. The tariff will specify that capacity release transactions do not alter the application of the FL&U retention percentage and that the replacement shipper is responsible for the FL&U retention on its scheduled quantities.

Interaction with Interconnection Metering. The interconnection metering facilities at the Wetzel County Interconnect — consisting of three runs of 12-inch ultrasonic flow meters and gas chromatographs — provide the primary measurement data for determining FL&U on the Ridgeline system. The accuracy and calibration of these meters directly affect the L&U component of FL&U, because any systematic measurement error at the receipt point will appear as a corresponding over-count or under-count in the L&U calculation. The tariff will specify the metering accuracy standards to which the interconnection meters will be maintained, the frequency of meter calibration, and the methodology for adjusting FL&U calculations to account for any identified meter inaccuracies. This is also relevant to the allocation of measurement losses between the Ridgeline and ATPC systems at the interconnection point, as noted in Section III.C.

Coordination with Penalty Revenue Crediting (Deficiency Item No. 10). The tariff will include a provision specifying that any revenues from operational flow order ("OFO") penalties or other penalty mechanisms are not to be commingled with FL&U accounts. OFO penalty revenues are subject to separate crediting requirements under FERC precedent and must be tracked and distributed separately from FL&U over-recovery and under-recovery balances. The tariff will establish separate accounting for FL&U and penalty revenue to ensure transparency and prevent cross-subsidization.

V. Analysis of Key Design Considerations

A. In-Kind vs. Cash Reimbursement

As noted in Section IV.A, we recommend in-kind percentage retention as the structure for the FL&U tracker mechanism. This recommendation is based on the following considerations:

Administrative Simplicity. In-kind retention is significantly simpler to administer than cash reimbursement. Under in-kind retention, the pipeline retains a percentage of each shipper's gas at the receipt point, and no separate invoicing, pricing, or payment processing is required for fuel costs. The retention is automatically reflected in the shipper's scheduled and delivered quantities. Under cash reimbursement, by contrast, the pipeline would need to track fuel costs separately, value the gas consumed at a market index price, generate monthly invoices for each shipper, process payments, and manage any disputes over pricing or billing. The administrative burden and potential for billing errors are substantially greater under a cash reimbursement model.

Insulation from Commodity Price Volatility. In-kind retention insulates both the pipeline and shippers from commodity price volatility. Under in-kind retention, the pipeline receives gas in the physical quantity needed for fuel and system losses, without reference to the market price of gas. Under cash reimbursement, the amount invoiced to shippers fluctuates with the market price of gas, creating billing variability that may be undesirable for both the pipeline (which bears collection risk in periods of high prices) and shippers (w

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the addressees identified herein and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
MEMORANDUM
TO:
Patricia Dunmore, Founder & Chairperson, Dunmore Energy Holdings Ltd.
James K. Winfield, CEO & President, Ridgeline Midstream Services LLC
Dr. Natasha Orlov, Director of Rates & Regulatory, Ridgeline Midstream Services LLC
FROM:
George Trujillo, Responsible Partner, Calderwood & Harkness LLP
Brett Callahan, Lead Associate, Calderwood & Harkness LLP
DATE: July 14, 2023
RE: Design of Fuel-Use and Lost-and-Unaccounted-For Gas (FL&U) Tracker Mechanism — Addressing FERC Deficiency Item No. 2, Docket Nos. RP22-847-000 and RP22-847-001
C&H Matter No.: 1016-00005
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I. Executive Summary
This memorandum addresses Deficiency Item No. 2 identified in the January 19, 2023 Deficiency Letter issued by the Federal Energy Regulatory Commission's ("FERC" or the "Commission") Office of Energy Market Regulation ("OEMR"), authored by Dr. Miriam Okafor, Lead Economic Analyst, which requires Ridgeline Midstream Services LLC ("Ridgeline" or the "Pipeline") to include a fuel-use and lost-and-unaccounted-for gas ("FL&U") tracker mechanism in its proposed FERC Gas Tariff, Original Volume No. 1 (the "Tariff"). The Deficiency Letter identified the absence of such a mechanism as a material deficiency in the original tariff filing and directed Ridgeline to propose a tracker that would allow for periodic adjustment of fuel retention percentages to reflect actual fuel consumption and system losses.
Ridgeline's original tariff filing of May 12, 2022 did not include any FL&U tracker or fuel retention mechanism. Instead, fuel costs were embedded in the test-year cost of service of $97.36 million as a component of operations and maintenance ("O&M") expense, without a separate tracking or true-up provision. This approach, while not per se impermissible, is inconsistent with the prevailing practice among FERC-jurisdictional interstate natural gas pipelines and exposes both the Pipeline and its shippers to the risk of fuel cost over-recovery or under-recovery over time. FERC Staff's identification of this deficiency was not unexpected; Calderwood & Harkness advised Ridgeline at the time of the original filing that the absence of an FL&U tracker could be raised as a concern during the review process, and the Deficiency Letter confirmed that assessment.
Based on our review of FERC policy, Commission precedent, and the operational characteristics of the Ridgeline Pipeline System, this memorandum recommends the adoption of a percentage-based in-kind fuel retention mechanism with an annual true-up filing. Under this mechanism, Ridgeline would retain a stated percentage of the gas tendered by shippers for transportation to cover compressor fuel consumption and system losses, with the retention percentage subject to annual adjustment through a true-up filing that compares actual FL&U quantities to retained quantities and proposes adjustments for the subsequent period. This structure is consistent with the prevailing approach approved by FERC for FERC-jurisdictional interstate natural gas pipelines and is the mechanism most likely to secure Staff support and intervenor acceptance.
The proposed mechanism is being developed in coordination with Braswell Energy Consulting Group LLC ("Braswell"), a regulatory consulting firm based in McLean, Virginia (engagement no. BEC-2023-0041, lead consultant Dr. Raymond Braswell, former FERC economist). Braswell was retained by Dunmore Energy Holdings Ltd. ("DEH") on April 15, 2023, as part of the comprehensive tariff redesign effort to address all fourteen deficiency items identified in the January 19, 2023 Deficiency Letter. Dr. Braswell's team is currently analyzing actual operating data from the Ridgeline Pipeline System for the period October 1, 2021 through March 31, 2023 (approximately eighteen months of operations) to derive the proposed initial FL&U retention percentage.
The FL&U tracker provisions will be incorporated into the redesigned tariff currently being prepared for filing by the February 21, 2025 deadline established by Administrative Law Judge ("ALJ") Clara Whitfield's procedural order of March 4, 2024. That order, which granted Ridgeline's third request for an extension of time, imposed certain conditions on the extension, including the filing of quarterly status reports with the ALJ's office. The FL&U tracker is one of several critical tariff design elements that must be resolved before the redesigned tariff is ready for filing.
This memorandum provides our analysis of the applicable FERC policy and precedent (Section III), our recommended mechanism design (Section IV), our analysis of key design considerations (Section V), our assessment of the impact on ongoing settlement negotiations (Section VI), and our recommended next steps (Section IX). The memorandum is intended to provide a framework for discussion among the Ridgeline management team, Braswell, and Calderwood & Harkness as we move toward finalization of the FL&U tracker design over the coming months.
II. Background
A. The Ridgeline Pipeline System — Operational Context for FL&U
An understanding of the physical and operational characteristics of the Ridgeline Pipeline System is essential to the design of an appropriate FL&U tracker mechanism, because the magnitude and composition of fuel use and system losses are directly determined by system configuration, compression capacity, throughput levels, and measurement infrastructure.
The Ridgeline Pipeline System (the "System" or the "Pipeline") consists of 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 pipeline was designed with a maximum daily capacity of 1.2 billion cubic feet per day ("Bcf/d"), equivalent to 1,200,000 dekatherms per day ("Dth/d") at an assumed BTU content of 1,000 BTU per cubic foot. The System currently processes throughput of approximately 680 million cubic feet per day ("MMcf/d"), representing a utilization rate of approximately 56.67% of design capacity. This utilization rate is relevant to the FL&U tracker design, as discussed in detail in Section V.D below, because compressor fuel consumption as a percentage of throughput tends to be higher at lower utilization rates due to the fixed overhead associated with compressor station operations.
The System includes three compressor stations: the Wetzel Station (located near the Wetzel County Interconnect at the southern terminus of the pipeline), the Mannington Station (located at approximately the midpoint of the pipeline in Marion County, West Virginia), and the Waynesburg Station (located at the northern terminus of the pipeline in Greene County, Pennsylvania). The three stations have an aggregate installed compression capacity of 45,000 horsepower ("HP"). All three compressor stations are equipped with gas-fired reciprocating compressor units, meaning that the compressors consume natural gas directly from the pipeline as fuel. This is a significant factor in FL&U tracker design, because gas-fired compression creates a direct in-kind fuel requirement that is naturally suited to recovery through an in-kind retention mechanism. Compressor fuel consumption constitutes the primary and largest component of FL&U on the Ridgeline system. Additional gas losses on the system are attributable to measurement differentials between receipt and delivery meters, blowdowns conducted for maintenance and emergency operations, venting during compressor station operations, fugitive emissions, and other operational factors that collectively constitute the "lost and unaccounted for" component of FL&U.
The Pipeline was constructed at a total cost of approximately $587.2 million and was placed in service on October 1, 2021. As of the date of the January 19, 2023 Deficiency Letter, the Pipeline had been in operation for approximately eighteen months. The limited operating history of the System is relevant to the FL&U tracker design because FERC precedent recognizes that new pipelines may not yet have sufficient operating data to establish a permanent FL&U retention percentage, and the Commission has approved various transitional mechanisms to address this issue, as discussed in Section III.B below.
Ridgeline is a wholly-owned subsidiary of Dunmore Energy Holdings Ltd. ("DEH"), a Cayman Islands exempted limited company (Company Registration No. CR-381204), controlled by Patricia Dunmore, who holds a 72% equity interest in DEH. DEH is the ultimate parent entity of the Ridgeline corporate family and has retained Calderwood & Harkness LLP to represent Ridgeline in the FERC tariff proceeding. DEH has also separately engaged Braswell Energy Consulting Group LLC to provide regulatory consulting and rate design services in connection with the tariff redesign.
At its southern terminus, Ridgeline has proposed an interconnection with Appalachian Trunk Pipeline Company, LLC ("ATPC") at the Wetzel County Interconnect, located at ATPC Milepost 412.6. The interconnection has been designed with an initial capacity of 800 MMcf/d bidirectional, expandable to 1.2 Bcf/d, at a total interconnection facilities cost of $22.3 million. The interconnection authorization is being sought concurrently with the tariff approval under NGA § 7, in Docket No. RP22-847-001. The interconnection metering facilities at the Wetzel County Interconnect — which include three runs of 12-inch ultrasonic flow meters and gas chromatographs — serve as the primary receipt-point measurement infrastructure for the Pipeline and will provide the foundational measurement data for FL&U calculations. The accuracy and calibration of these meters directly affect the determination of the "lost and unaccounted for" component of FL&U, and the allocation of measurement losses between the Ridgeline and ATPC systems at the interconnection point is a matter of concern to ATPC, as discussed in Section III.C below.
B. The Original Tariff Filing and Deficiency Identification
Ridgeline filed its application for initial tariff rate and interconnection authorization on May 12, 2022, in Docket Nos. RP22-847-000 (tariff rate proceeding) and RP22-847-001 (interconnection authorization proceeding), under Sections 4 and 7 of the Natural Gas Act ("NGA"), 15 U.S.C. §§ 717c and 717f, and the Commission's implementing regulations at 18 C.F.R. Parts 154, 157, and 284. The filing sought authorization to provide open-access firm and interruptible natural gas transportation service on the Ridgeline Pipeline System at just and reasonable rates determined through the Commission's cost-of-service methodology.
The original filing proposed a recourse rate of $0.2265 per Dth, composed of a reservation charge of $0.2223 per Dth and a usage charge of $0.0042 per Dth, calculated on the basis of a 100% load factor and levelized over a 25-year cost recovery period. The rate was derived from a rate base as filed of $612.40 million, consisting of net plant of $563.71 million, working capital of $18.64 million, a deduction for accumulated deferred income taxes ("ADIT") of $12.45 million, and other rate base items of $42.50 million. The total cost of service as filed was $97.36 million.
Critically, fuel costs associated with compressor fuel consumption on the system were included within the test-year O&M expense of $12.44 million. The original filing did not propose any separate FL&U tracker mechanism or fuel retention provision. Under this approach, fuel costs would have been recovered entirely through the per-Dth transportation rate, with no mechanism for adjusting fuel cost recovery to reflect actual fuel consumption. This approach has the disadvantage of locking in a fuel cost assumption at the level embedded in the test-year cost of service, without any mechanism for adjustment if actual fuel consumption deviates from the assumed level. As noted above, Calderwood & Harkness had advised Ridgeline prior to the original filing that this approach, while not categorically impermissible, was inconsistent with prevailing industry practice and risked a deficiency finding. The decision to file without an FL&U tracker was made by Ridgeline management in the interest of expediting the initial filing, with the understanding that an FL&U tracker could be added in response to any Commission concerns.
On January 19, 2023, FERC's Office of Energy Market Regulation issued a Deficiency Letter identifying fourteen deficiency items in the original tariff filing. The letter was authored by Dr. Miriam Okafor, Lead Economic Analyst for the proceeding, and issued under the signature of the Director of OEMR. Deficiency Item No. 2 specifically stated that Ridgeline had failed to include a fuel-use and lost-and-unaccounted-for gas ("FL&U") tracker mechanism in its proposed tariff and directed Ridgeline to propose a mechanism for tracking and adjusting fuel retention to reflect actual fuel consumption and system losses. The Deficiency Letter described the absence of an FL&U tracker as a material deficiency that must be cured before the tariff could be accepted for filing.
Ridgeline filed a partial response to the Deficiency Letter on March 15, 2023, addressing eight of the fourteen deficiency items (Items 1 through 4 and Items 7 through 10). With respect to Deficiency Item No. 2, the partial response provided a preliminary overview of an FL&U framework, describing in general terms Ridgeline's intent to adopt an in-kind fuel retention mechanism with periodic true-up. However, FERC Staff indicated, through informal communications with Calderwood & Harkness, that a more fully developed mechanism — including specific retention percentages, detailed true-up procedures, and draft tariff language — would be required before the deficiency could be considered cured. The present memorandum is intended to advance the development of that more fully developed mechanism.
ALJ Whitfield stayed the procedural schedule on February 6, 2023, pending completion of the tariff redesign effort necessitated by the Deficiency Letter. The stay was granted at the joint request of the parties, with the understanding that Ridgeline would work diligently to address all fourteen deficiency items and file a redesigned tariff within a reasonable period.
C. Procedural Posture
The procedural posture of the proceeding is relevant to the FL&U tracker design because the timeline for completing the redesigned tariff, the positions of the intervenors, and the settlement discussions all affect the approach that Ridgeline should take in designing and proposing the tracker mechanism.
The proceeding has been largely dormant since September 8, 2023, when ALJ Whitfield granted Ridgeline's second request for an extension of time to complete the tariff redesign. A third extension was subsequently granted on March 4, 2024, with certain conditions. Specifically, the March 4, 2024 order established a firm filing deadline of February 21, 2025 for the redesigned tariff and imposed a requirement that Ridgeline file quarterly status reports with the ALJ's office detailing the progress of the tariff redesign and the status of settlement discussions. The quarterly status report requirement reflects the ALJ's concern about the extended duration of the proceeding and her desire to ensure that the parties are making meaningful progress toward resolution.
Settlement discussions have been ongoing before Settlement Judge Howard Margolis since the early stages of the proceeding, but have not yet yielded a comprehensive settlement. Four settlement conferences have been held: November 30, 2022; March 8, 2023; July 12, 2023; and January 18, 2024. While the conferences have been productive in narrowing the issues in dispute and fostering communication among the parties, no settlement has been reached. The parties remain approximately $0.058 per Dth apart on the overall transportation rate, with Ridgeline's current revised proposed rate at $0.3140 per Dth and the combined position of ATPC and the Mountainside Gas Producers Coalition ("MGPC") at approximately $0.2560 per Dth. The rate gap is driven primarily by disputes over the appropriate return on equity ("ROE"), cost allocation methodology, and billing determinant (load factor), rather than by the FL&U tracker issue specifically. However, as discussed in Section VI, the FL&U tracker design may have a marginal impact on effective transportation costs and could serve as a useful point of compromise in the broader settlement discussions.
The following parties have intervened in the proceeding:
• Appalachian Trunk Pipeline Company, LLC ("ATPC"), the interconnecting pipeline at the Wetzel County Interconnect. ATPC is represented by the law firm of Kellner, Royce & Dillard LLP, with William Pratt serving as lead counsel. ATPC's senior regulatory officer, Sandra K. Fenton, has been the primary contact for settlement discussions. ATPC's intervention focuses on the terms and conditions of the interconnection at the Wetzel County Interconnect, cost allocation at the interconnection point, and the impact of Ridgeline's rates on ATPC's shippers.
• Mountainside Gas Producers Coalition ("MGPC"), a coalition of fourteen natural gas production companies operating in the Appalachian Basin. MGPC is represented by the law firm of Whitmore & Sable LLP, with Rebekah Montague serving as lead counsel. MGPC's Executive Director is Calvin Dreyer, and its rate expert is Dr. Eleanor Vasquez. MGPC's intervention focuses on the reasonableness of Ridgeline's proposed rates, cost allocation, and shipper protections, including the design of the FL&U tracker.
• Clearwater Municipal Gas Authority ("CMGA"), a municipal gas utility serving residential and commercial customers in the Clearwater, Pennsylvania area. CMGA is represented by Fordham Municipal Law Group PC, with Stephen Greer serving as lead counsel. CMGA's General Manager is Dennis Ott. CMGA's intervention focuses on the downstream impact of Ridgeline's rates and tariff provisions on municipal end-users.
FERC Trial Staff is participating actively in the proceeding. The Lead Trial Attorney is Jonathan Briggs, and the Lead Economic Analyst is Dr. Miriam Okafor. Trial Staff's positions on the various deficiency items are not yet fully developed in the record, but Staff's identification of the FL&U tracker deficiency indicates a clear expectation that the redesigned tariff will include a transparent, auditable tracker with annual true-up and clear separation of fuel-use and L&U components, consistent with the approach that FERC has approved in recent pipeline tariff proceedings.
III. FERC Policy and Precedent on FL&U Tracker Mechanisms
A. Regulatory Framework
The Commission has long recognized that fuel costs and gas losses on interstate natural gas pipelines are inherently variable and difficult to predict with precision. Fuel consumption is affected by throughput volumes, ambient temperature, gas quality, compressor efficiency, and other operational factors that fluctuate over time. Similarly, the "lost and unaccounted for" component of system losses — encompassing measurement differentials, blowdowns, fugitive emissions, venting, and other factors — varies based on system conditions, maintenance activities, and operational events. Because of this variability, the Commission has acknowledged that embedding a fixed fuel cost assumption in the cost of service, without any mechanism for periodic adjustment, creates an inherent risk of over-recovery or under-recovery that is inequitable to either the pipeline or its shippers.
FL&U tracker mechanisms address this concern by allowing pipelines to adjust their fuel retention percentages periodically — typically on an annual basis — to reflect actual fuel consumption and system losses. The tracker mechanism ensures that shippers bear only the actual cost of fuel consumed and gas lost in providing transportation service, while allowing the pipeline to recover its legitimate fuel costs without bearing the risk of under-recovery due to unanticipated changes in fuel consumption patterns.
The regulatory framework governing FL&U tracker mechanisms is grounded in the following authorities:
• Natural Gas Act § 4, 15 U.S.C. § 717c, which requires that all rates and charges for the transportation of natural gas in interstate commerce be just and reasonable. The Commission has interpreted this requirement as supporting FL&U tracker mechanisms because such mechanisms promote accuracy in fuel cost recovery and prevent unjust enrichment or undue burden.
• 18 C.F.R. Part 154, which establishes the general requirements for filing tariffs and rate schedules with the Commission. FL&U tracker provisions are included in the General Terms and Conditions ("GT&C") section of a pipeline's tariff, subject to the formatting and filing requirements of Part 154.
• 18 C.F.R. Part 284, Subpart G, which establishes the requirements for open-access transportation services on interstate natural gas pipelines. The open-access requirements of Part 284 mandate that pipelines provide non-discriminatory transportation service under tariff provisions that are transparent and accessible to all shippers. FL&U tracker mechanisms, with their reporting and disclosure requirements, are consistent with these transparency objectives.
• FERC Policy Statements and Orders, through which the Commission has articulated its policy preferences for FL&U tracker design. While the Commission has not issued a single comprehensive policy statement on FL&U trackers, its preferences have been expressed through a substantial body of orders approving FL&U mechanisms in individual pipeline tariff proceedings. The consistent themes emerging from this body of precedent are: (i) FL&U trackers are strongly encouraged for interstate natural gas pipelines; (ii) in-kind percentage retention is the preferred structure; (iii) separate tracking and reporting of fuel-use and L&U components is required; (iv) periodic true-up filings — typically annual — are necessary to ensure accuracy; and (v) shippers must have access to FL&U data and audit rights to verify the pipeline's calculations.
The overarching principle underlying the Commission's approach to FL&U trackers is that the mechanism should ensure that neither the pipeline nor its shippers bear the risk of fuel cost over-recovery or under-recovery on a sustained basis. The tracker achieves this objective by establishing a retention percentage based on the best available data, and then periodically adjusting that percentage to reflect actual experience. Any over-recovery or under-recovery during a true-up period is corrected through credits or surcharges in the subsequent period, ensuring that the cumulative impact of the tracker on shippers reflects actual, rather than estimated, fuel costs.
B. Survey of FERC Precedent
A thorough review of FERC orders approving FL&U tracker mechanisms for interstate natural gas pipelines confirms that the mechanism recommended in this memorandum — an in-kind percentage retention mechanism with annual true-up — is consistent with prevailing Commission precedent. A detailed summary of FL&U tracker mechanisms approved by FERC for comparable Appalachian Basin and national interstate pipelines is provided in Appendix A to this memorandum. The following discussion highlights the most relevant precedent.
In-Kind Percentage Retention vs. Cash Reimbursement. The Commission has approved both in-kind percentage retention mechanisms and cash reimbursement mechanisms for FL&U recovery on interstate pipelines. Under an in-kind mechanism, the pipeline retains a stated percentage of the gas tendered by shippers for transportation, and this retained gas is consumed as compressor fuel or applied to offset system losses. Under a cash reimbursement mechanism, shippers deliver the full quantity of gas tendered and are separately invoiced for fuel costs based on the pipeline's actual fuel expenditures. The Commission has expressed a clear and consistent preference for in-kind retention mechanisms, finding them to be more administratively efficient and less susceptible to commodity price risk than cash reimbursement alternatives. In-kind retention eliminates the need to value fuel gas at a market index price for billing purposes, reduces the volume of monetary transactions between the pipeline and its shippers, and aligns the pipeline's fuel recovery with its actual gas-fired compression operations. The overwhelming majority of FL&U trackers approved by the Commission for Appalachian Basin pipelines utilize the in-kind retention structure.
True-Up Filing Frequency. The Commission has approved FL&U trackers with annual, semi-annual, and quarterly true-up filing periods, depending on the characteristics of the individual pipeline system. The majority of approved trackers utilize annual true-up filings, typically filed on or before a specified date (often April 1 or May 1) covering the prior calendar year. Semi-annual true-up periods have been approved for pipeline systems with high throughput variability or seasonal demand patterns that create significant fluctuations in fuel consumption from one half of the year to the other. Quarterly true-up periods are rare and have generally been approved only for new pipelines with very limited operating history or for systems undergoing significant operational changes. For the Ridgeline Pipeline System, an annual true-up period is appropriate as a long-term structure, though we recommend a transitional semi-annual true-up period during the initial years of operation, as discussed in Section V.D below.
Separate Tracking of Fuel Use and L&U. The Commission has consistently required pipelines to track and report the fuel-use and lost-and-unaccounted-for components of FL&U separately, even where the two components are combined into a single retention percentage applied to shipper quantities. This requirement serves several purposes: it allows the Commission and shippers to monitor the pipeline's operational efficiency; it facilitates identification of abnormal system losses that may warrant investigation; and it supports environmental reporting obligations related to fugitive emissions and venting. The Commission has directed that the fuel-use component be calculated based on actual metered fuel consumption at each compressor station, while the L&U component is typically calculated as the residual difference between total metered receipts and total metered deliveries after accounting for fuel consumption, changes in line pack, and gas in storage.
Treatment of Gas-Fired vs. Electric-Driven Compression. The Commission's treatment of FL&U differs depending on whether a pipeline's compressor stations are gas-fired or electric-driven. For gas-fired compressor stations, the fuel consumed is natural gas drawn directly from the pipeline, and in-kind retention is the natural and appropriate recovery mechanism. For electric-driven compressor stations, the fuel cost is an electricity expense rather than a gas consumption, and recovery through the cost of service (as an O&M expense) or through a cash-based tracker is more appropriate. Because all three of Ridgeline's compressor stations are gas-fired, the in-kind retention mechanism is directly applicable to the full fuel-use component of FL&U. However, as discussed in Section V.C, we recommend including a tariff provision to accommodate potential future changes in compression technology.
FL&U Retention Percentage Ranges. The Commission has approved a wide range of FL&U retention percentages depending on system characteristics. For Appalachian Basin pipelines with configurations broadly comparable to Ridgeline — that is, pipelines of similar length (100–300 miles), diameter (20–36 inches), and compression capacity (30,000–75,000 HP) — approved FL&U retention percentages have generally fallen in the range of 1.5% to 4.0%. The fuel-use component typically accounts for the majority of the retention percentage, with the L&U component typically in the range of 0.2% to 1.0%. The specific percentage depends on factors including pipeline length, number and capacity of compressor stations, compressor efficiency, throughput levels, and terrain. A detailed table of approved FL&U percentages for comparable pipelines is provided in Appendix A.
Treatment of New Pipelines with Limited Operating History. The Commission has recognized that new pipelines may not have sufficient operating data to establish a definitive FL&U retention percentage at the time of their initial tariff filing. In such cases, the Commission has approved various approaches, including: (i) establishing an initial retention percentage based on the available operating data, however limited, with the expectation that the annual true-up process will refine the percentage over time; (ii) establishing an initial retention percentage based on engineering estimates derived from compressor manufacturer performance data and pipeline hydraulic models, subject to subsequent adjustment based on actual operating data; and (iii) establishing a range for the initial retention percentage and allowing the true-up process to converge on the appropriate level. Given that Ridgeline will have approximately three years of operating data by the February 21, 2025 filing deadline, we believe that the initial retention percentage can be based primarily on actual operating data, supplemented as necessary by engineering estimates for periods of atypical operations.
C. Intervenor Positions on FL&U
While the FL&U tracker has not been a central point of contention in the proceeding to date, each intervenor has expressed views — directly or indirectly — that are relevant to the mechanism design.
ATPC. ATPC's protest, filed on August 15, 2022, did not directly address the FL&U issue. ATPC's primary concerns relate to cost allocation at the Wetzel County Interconnect, the terms of the interconnection agreement, and the impact of Ridgeline's proposed rates on ATPC's system and shippers. However, the FL&U tracker is relevant to ATPC's interests in at least one important respect: the allocation of gas measurement losses at the interconnection metering station. The Wetzel County Interconnect is the primary receipt point for gas entering the Ridgeline system from ATPC's system, and measurement differentials at this point — arising from differences in metering equipment, calibration standards, gas quality, and measurement methodologies between the two systems — contribute to the L&U component of FL&U on the Ridgeline system. ATPC has expressed interest, through its regulatory officer Sandra K. Fenton and its counsel William Pratt, in allocating a portion of the interconnection-point measurement losses to Ridgeline's L&U account rather than to ATPC's system. This allocation question will need to be addressed in the FL&U tracker design, potentially through a provision specifying the methodology for determining the measurement baseline at the interconnection point and allocating any measurement differentials between the two systems.
MGPC. MGPC, through its Executive Director Calvin Dreyer and its rate expert Dr. Eleanor Vasquez, has generally expressed support for the inclusion of an FL&U tracker in Ridgeline's tariff, recognizing that a tracker mechanism is standard industry practice and promotes fair cost recovery. However, MGPC has advocated for two specific design features: (i) a lower initial retention percentage than what Ridgeline might otherwise propose, reflecting MGPC's general position that the pipeline's costs should be conservatively estimated to protect shipper interests; and (ii) more frequent true-up filings, specifically semi-annual rather than annual, to provide more timely correction of any over-recovery or under-recovery. Dr. Vasquez's testimony in other proceedings has consistently favored more frequent true-up periods as a shipper protection measure, and we anticipate that she will take a similar position in this proceeding. We should be prepared to address MGPC's concerns in the tariff design and in the supporting testimony.
CMGA. CMGA, through its General Manager Dennis Ott and its counsel Stephen Greer, has aligned its position generally with ATPC's position in the proceeding. CMGA's primary concern is the downstream impact of Ridgeline's rates and tariff provisions on ATPC's system, which ultimately affects the delivered cost of gas to CMGA's municipal customers. With respect to FL&U, CMGA is concerned about the extent to which FL&U charges imposed by Ridgeline at the Wetzel County Interconnect will flow through ATPC's system and be passed on to CMGA and its end-use customers. While this is primarily a concern about the overall level of FL&U charges rather than the tracker mechanism design, it reinforces the importance of establishing a reasonable and well-supported initial retention percentage.
FERC Trial Staff. FERC Trial Staff, led by Trial Attorney Jonathan Briggs and Lead Economic Analyst Dr. Miriam Okafor, identified the absence of an FL&U tracker as Deficiency Item No. 2 in the January 19, 2023 Deficiency Letter. Staff's position on the specific design of the FL&U tracker has not been formally articulated in the record, but based on our informal communications with Staff and our review of Staff positions in comparable proceedings, we expect that Staff will favor a transparent, auditable tracker mechanism with annual true-up filings, clear separation of fuel-use and L&U components, comprehensive reporting requirements (including monthly EBB postings), and shipper audit rights. Our recommended mechanism design is intended to be responsive to these anticipated Staff preferences.
IV. Proposed FL&U Tracker Mechanism Design
A. Structure Overview
Based on our review of FERC policy and precedent, the operational characteristics of the Ridgeline Pipeline System, and the positions of the intervenors and FERC Staff, we recommend the following structure for the FL&U tracker mechanism:
Recommended Structure: An in-kind percentage retention mechanism applied to all gas tendered for transportation on the Ridgeline Pipeline System, under which Ridgeline retains a stated percentage of each shipper's scheduled quantities to cover compressor fuel consumption and system losses, with the retention percentage subject to annual adjustment through a true-up filing submitted to the Commission.
Under this mechanism, the FL&U retention percentage would be applied at the receipt point (Wetzel County Interconnect) or, at shipper election where operationally feasible, at the delivery point (Waynesburg Compressor Station). The retention percentage would be deducted from the shipper's scheduled quantities, so that the shipper's delivered quantity is the scheduled quantity less the FL&U retention. For example, if a shipper schedules 100,000 Dth for transportation and the FL&U retention percentage is 2.5%, the shipper would receive delivery of 97,500 Dth, with 2,500 Dth retained by Ridgeline for fuel and L&U purposes.
The tracker would separately track and report two distinct components:
1. Fuel Use (Compressor Fuel): The quantity of natural gas consumed as fuel in the operation of the three compressor stations on the Ridgeline Pipeline System (Wetzel Station, Mannington Station, and Waynesburg Station), measured by dedicated fuel gas meters installed at each compressor station.
2. Lost and Unaccounted For Gas (L&U): The residual difference between total metered receipts and total metered deliveries on the system, after accounting for fuel use, changes in line pack, and any gas stored or in transit. This component encompasses measurement differentials between receipt and delivery meters, blowdowns for maintenance and emergency operations, fugitive emissions, venting, and other operational system losses.
The combined initial FL&U retention percentage will be established based on the best available operating data from October 1, 2021 (the System's in-service date) through March 31, 2023, representing approximately eighteen months of operations. This data is currently being analyzed by Braswell Energy Consulting Group, as discussed in Section VII below.
B. Determination of Initial FL&U Retention Percentage
The determination of the initial FL&U retention percentage is a critical element of the tracker design. The initial percentage will serve as the baseline retention level from the effective date of the tariff until the first annual true-up filing, and will be the subject of scrutiny by FERC Staff, intervenors, and the Commission. It is therefore essential that the initial percentage be well-supported by actual operating data and consistent with percentages approved for comparable pipeline systems.
Fuel Use Component. The fuel-use component of the initial FL&U retention percentage will be calculated based on actual compressor fuel consumption at the three compressor stations (Wetzel, Mannington, and Waynesburg; 45,000 HP aggregate) during the available operating period, divided by total system throughput during the same period. Braswell is currently compiling and analyzing the compressor fuel consumption data from the individual fuel gas meters at each station. The fuel-use component reflects the gas consumed as compressor fuel to move gas through the pipeline, and is the largest and most directly measurable component of FL&U.
The calculation is straightforward in concept:
Fuel Use % = (Total Fuel Gas Consumed at All Compressor Stations during Period) ÷ (Total Gas Received at Receipt Point(s) during Period) × 100
However, the calculation must account for several factors that affect data quality and representativeness, including: variations in throughput levels during the test period; periods of compressor station outages or maintenance; changes in compressor operating conditions (speed, load, suction and discharge pressures); variations in gas quality (BTU content, specific gravity) that affect compressor performance; and any atypical operational events during the test period (such as blowdowns, pigging operations, or emergency shutdowns) that may have affected fuel consumption patterns.
L&U Component. The lost-and-unaccounted-for component will be calculated based on the difference between total measured receipts and total measured deliveries during the test period, after accounting for fuel use, changes in line pack (gas in the pipeline), and any gas stored or otherwise accounted for. The L&U component is a residual calculation and is inherently less precise than the fuel-use component, because it encompasses all sources of gas loss that are not directly attributable to fuel consumption. These sources include:
• Measurement uncertainty at receipt and delivery meters (i.e., the aggregate effect of small measurement errors across all metering points)
• Blowdowns for maintenance and emergency operations (gas vented or flared during planned and unplanned maintenance activities)
• Fugitive emissions from valves, fittings, flanges, and other equipment
• Venting from compressor station operations
• Other unaccounted system losses
Throughput Sensitivity. An important consideration in determining the initial FL&U retention percentage is the effect of the current throughput level on the percentage calculation. At the current throughput of approximately 680 MMcf/d (56.67% of the 1.2 Bcf/d design capacity), fuel use as a percentage of throughput is expected to be higher than it would be at higher utilization levels. This is because compressor stations have a certain minimum fuel consumption associated with maintaining operating pressure and temperature regardless of the actual volume of gas being transported — effectively a fixed overhead component of fuel consumption. As throughput increases toward design capacity, the fuel consumption increases at a rate less than proportional to throughput, meaning that the fuel-use percentage (expressed as a percentage of throughput) decreases. Consequently, the initial FL&U retention percentage derived from operating data at 56.67% utilization may be higher than the percentage that would apply at higher throughput levels.
The FL&U tracker design should incorporate provisions to address this throughput sensitivity, as discussed in Section V.D below. Specifically, we recommend a "ramp-up" provision that allows for more frequent true-up filings during the initial years of operation when throughput is expected to increase materially.
Proposed Initial Percentage. Based on the preliminary information available from Ridgeline's operating records and our survey of FL&U percentages approved for comparable Appalachian Basin pipelines (see Appendix A), we believe the initial combined FL&U retention percentage will fall in the range of 2.0% to 3.0%, subject to revision based on the final results of Braswell's analysis. Within this range, we anticipate that the fuel-use component will account for approximately 1.5% to 2.0% and the L&U component will account for approximately 0.5% to 1.0%. These preliminary estimates are consistent with the percentages approved for comparable systems in the Appalachian Basin, though the precise figures will depend on the actual operating data analysis being conducted by Braswell. We will refine these estimates as Braswell completes its analysis, with a target of October 2023 for the final FL&U analysis report.
Comparison to Comparable Pipelines. The proposed initial retention percentage should be benchmarked against FL&U percentages approved by FERC for comparable interstate natural gas pipelines. A detailed comparison table is provided in Appendix A. In general, pipelines of similar length, diameter, compression capacity, and throughput levels in the Appalachian Basin have been approved with FL&U retention percentages in the range of 1.5% to 4.0%, with the precise percentage depending on the specific system configuration and operating conditions. Ridgeline's preliminary estimate of 2.0% to 3.0% falls within this range and is consistent with FERC precedent.
C. Annual True-Up Filing Procedure
The annual true-up filing is the mechanism by which the FL&U retention percentage is periodically adjusted to reflect actual fuel consumption and system losses. The true-up process ensures that the retention percentage remains accurate over time and that any over-recovery or under-recovery during a given period is corrected in the subsequent period.
Filing Date and True-Up Period. We recommend that Ridgeline be required to file an annual true-up filing on or before April 1 of each year, covering the prior calendar year (January 1 through December 31). The April 1 filing date allows sufficient time after the close of the calendar year for Ridgeline to compile and verify the necessary operating data, prepare the true-up calculation, and submit the filing to the Commission. This filing date is consistent with the practice of the majority of interstate pipelines with annual FL&U true-up filings.
Filing Requirements. The true-up filing will be made pursuant to NGA § 4 and 18 C.F.R. § 154.403 (or equivalent applicable provision) as an abbreviated rate change filing. The filing will include the following components:
(a) Actual fuel consumed at each compressor station (Wetzel, Mannington, and Waynesburg) during the true-up period, reported in both volumetric (Mcf) and thermal (Dth) units, with supporting data from the fuel gas meters at each station;
(b) Actual L&U quantities by category during the true-up period, including a breakdown of measurement differentials, blowdowns, venting, fugitive emissions, and other identified sources of system loss, to the extent separately quantifiable;
(c) Total system throughput during the true-up period, reported in both volumetric and thermal units, based on metered receipts at the Wetzel County Interconnect and metered deliveries at the Waynesburg Compressor Station and any other delivery points;
(d) Calculation of the actual FL&U percentage for the true-up period, showing the fuel-use and L&U components separately;
(e) Proposed adjusted FL&U retention percentage for the upcoming period, based on the actual FL&U percentage for the true-up period and any known or anticipated changes in system operations that may affect fuel consumption or system losses in the upcoming period;
(f) Calculation of any over-recovery or under-recovery from the prior period, with a proposed disposition mechanism (credits or surcharges, as described below).
Notice to Shippers. The true-up filing will be subject to a minimum 30-day notice period prior to the effective date of any revised FL&U retention percentage, consistent with the NGA § 4 filing requirements. Ridgeline will provide notice to all firm and interruptible shippers of the proposed revised percentage, along with a summary of the true-up calculation, at least 30 days prior to the proposed effective date. This notice will be provided through the Ridgeline electronic bulletin board ("EBB") and by direct communication to each shipper of record.
FERC Review. The true-up filing will be subject to FERC review and acceptance. The Commission may accept the filing as submitted, accept the filing subject to conditions, suspend the filing for further review, or reject the filing. If the Commission accepts the filing, the revised FL&U retention percentage will take effect on the proposed effective date. If the Commission suspends the filing, interim rates may be charged subject to refund pending completion of the Commission's review. The true-up filing process is designed to be routine and largely non-controversial, as it is based on actual operating data and a well-defined calculation methodology. We do not anticipate significant Commission scrutiny of the true-up filings, provided that the underlying data is accurate, the calculation methodology is transparent, and the proposed retention percentage is consistent with the actual operating experience.
Disposition of Over-Recovery and Under-Recovery. A critical element of the true-up process is the disposition of any over-recovery or under-recovery that has accumulated during the true-up period — that is, the difference between the quantity of gas retained under the FL&U retention percentage and the actual quantity of gas consumed as fuel and lost on the system.
Over-Recovery (Actual FL&U Less Than Retained Percentage): If the actual FL&U quantity during the true-up period is less than the quantity of gas retained under the FL&U retention percentage, Ridgeline will have over-recovered — i.e., it will have retained more gas than was actually consumed as fuel and lost on the system. In this case, the excess gas will be returned to shippers pro rata based on each shipper's throughput during the true-up period. The return may be effected as an in-kind credit applied to the shipper's scheduled quantities in the subsequent period or, at the shipper's election, as a cash payment based on the average daily index price at the applicable trading hub (to be specified in the tariff) during the month in which the credit is issued. The in-kind credit option is preferred for administrative simplicity, but the cash option provides flexibility for shippers that may prefer a monetary credit.
Under-Recovery (Actual FL&U Greater Than Retained Percentage): If the actual FL&U quantity during the true-up period exceeds the quantity of gas retained under the FL&U retention percentage, Ridgeline will have under-recovered — i.e., it will not have retained sufficient gas to cover actual fuel consumption and system losses. In this case, Ridgeline will be entitled to recover the under-recovery through a surcharge applied to shipper quantities pro rata during the subsequent period, subject to FERC review and approval as part of the true-up filing. The surcharge will be expressed as an incremental increase in the FL&U retention percentage for the subsequent period, applied until the under-recovery balance is fully recovered.
D. Tariff Sheet Provisions
The FL&U tracker mechanism will be implemented through specific tariff provisions to be included in the General Terms and Conditions of the revised FERC Gas Tariff, Original Volume No. 1. The tariff language must be clear, precise, and comprehensive, setting forth all of the key terms of the tracker mechanism in a manner that provides both the pipeline and its shippers with certainty regarding their respective rights and obligations. The following is an overview of the key provisions to be included in the tariff. Detailed draft tariff language is being developed and will be circulated for review in the next phase of the tariff redesign process.
Definition of "Fuel Use." The tariff will define "Fuel Use" as the quantity of natural gas consumed as compressor fuel in the operation of the Ridgeline Pipeline System, measured by dedicated fuel gas meters installed at each compressor station. The definition will specify that fuel use encompasses all gas consumed by compressor units, auxiliary equipment, and other station equipment that draws gas from the pipeline for operating purposes.
Definition of "Lost and Unaccounted For Gas." The tariff will define "Lost and Unaccounted For Gas" (or "L&U") as the difference between total metered receipt quantities and total metered delivery quantities on the Ridgeline Pipeline System during a given period, after accounting for: (i) fuel use; (ii) changes in line pack (gas in the pipeline); and (iii) gas stored or otherwise accounted for. The definition will specify the categories of system losses that are encompassed within L&U, including measurement differentials, blowdowns, venting, fugitive emissions, and other operational system losses.
FL&U Retention Percentage. The tariff will state the initial combined FL&U retention percentage, broken down into the fuel-use and L&U components, and will specify that the retention percentage is subject to annual adjustment through the true-up filing process described above. The tariff will also specify the point of application (receipt point or delivery point) and the methodology for calculating the retention from each shipper's scheduled quantities.
Shipper Notification. The tariff will require Ridgeline to provide a minimum of 30 days' prior written notice to all firm and interruptible shippers of any proposed change in the FL&U retention percentage, whether through the annual true-up filing or through any other filing with the Commission. Notice will be provided through posting on the Ridgeline EBB and by direct communication to each shipper of record.
Monthly Reporting Requirements. The tariff will require Ridgeline to post on its EBB, on a monthly basis, the following information: (i) actual fuel consumption at each compressor station for the prior month; (ii) actual L&U quantities for the prior month; (iii) total system throughput for the prior month; (iv) cumulative over-recovery or under-recovery position for the current true-up period; and (v) such other information as the Commission may require. This monthly reporting requirement is coordinated with Deficiency Item No. 7 (EBB posting requirements) and is intended to provide shippers with timely access to FL&U data throughout the year, rather than only at the time of the annual true-up filing.
Shipper Audit Rights. The tariff will grant shippers the right to audit Ridgeline's FL&U records upon reasonable notice. The audit right will extend to all data underlying the FL&U retention percentage calculation, including fuel gas meter data, system throughput data, line pack data, blowdown records, maintenance logs, and meter calibration records. Audits will be conducted at the shipper's expense, at a mutually agreeable time and location, and subject to confidentiality protections for proprietary operating data.
Dispute Resolution. The tariff will include a mechanism for shippers to challenge Ridgeline's FL&U calculations. The dispute resolution process will provide for: (i) informal resolution through direct discussion between the shipper and Ridgeline's designated FL&U representative; (ii) if not resolved informally, written submission of the dispute to Ridgeline's management for review; and (iii) if still not resolved, referral to FERC for resolution under the Commission's dispute resolution procedures. The tariff will specify time periods for each stage of the dispute resolution process to ensure prompt resolution.
E. Interaction with Other Tariff Provisions
The FL&U tracker mechanism does not operate in isolation; it interacts with numerous other provisions of the Ridgeline tariff, and its design must be coordinated with those provisions to ensure internal consistency and avoid unintended consequences.
Relationship to the Proposed Recourse Rate. The FL&U retention is separate from and in addition to the transportation rate charged to shippers. Under the revised tariff design, the proposed recourse rate of $0.3140 per Dth (composed of a reservation charge of $0.3102 per Dth and a usage charge of $0.0038 per Dth) does not include fuel costs in the per-Dth rate. Rather, fuel costs are recovered in-kind through the FL&U retention percentage. This separation of fuel cost recovery from the transportation rate is a fundamental design principle of the FL&U tracker mechanism: shippers pay the transportation rate in cash for the capacity and service provided, and separately contribute gas in-kind to cover the fuel consumed and gas lost in providing that service. The tariff will clearly state this relationship to avoid any confusion or double-counting.
Removal of Fuel Cost Component from Cost of Service. An important corollary of the FL&U tracker is the removal of compressor fuel costs from the O&M expense component of the cost-of-service model. Under the original tariff filing, compressor fuel costs were included within the test-year O&M expense of $12.44 million. Under the redesigned tariff, compressor fuel costs are recovered in-kind through the FL&U tracker rather than through the cost of service. The revised O&M expense of $13.92 million (updated from the original $12.44 million to reflect revised operating cost estimates) and the revised total cost of service of $103.15 million must be adjusted to exclude fuel costs to the extent they are recovered through the FL&U tracker, to avoid double recovery. The Braswell team is coordinating this adjustment as part of the comprehensive cost-of-service model revision, and Calderwood & Harkness will review the revised model to confirm that fuel costs are properly excluded.
Coordination with the IT Rate (Deficiency Item No. 3). Interruptible transportation ("IT") shippers on the Ridgeline system will be subject to the same FL&U retention percentage as firm transportation shippers. This is consistent with FERC precedent, which generally requires that FL&U retention be applied on a non-discriminatory basis to all gas transported on the system, regardless of whether the transportation is provided under firm or interruptible rate schedules. The IT rate design, which is the subject of Deficiency Item No. 3, will incorporate the FL&U tracker by reference to the FL&U provisions in the General Terms and Conditions.
Coordination with NAESB WGQ Version 3.2 Standards (Deficiency Item No. 6). The FL&U reporting and nomination processes must comply with the applicable standards of the North American Energy Standards Board Wholesale Gas Quadrant ("NAESB WGQ") Version 3.2, as required by the Commission. Specifically, the FL&U retention must be integrated into the nomination and scheduling processes so that shippers' confirmed quantities reflect the deduction of the FL&U retention percentage. The EBB posting of FL&U data must also comply with NAESB standards for data formatting, timing, and accessibility.
Coordination with Capacity Release Provisions (Deficiency Item No. 5). Under capacity release arrangements, a releasing shipper's firm capacity may be acquired by a replacement shipper through the Commission's capacity release mechanism. The FL&U retention percentage will apply to the replacement shipper's scheduled quantities in the same manner as it applies to the releasing shipper's quantities. The tariff will specify that capacity release transactions do not alter the application of the FL&U retention percentage and that the replacement shipper is responsible for the FL&U retention on its scheduled quantities.
Interaction with Interconnection Metering. The interconnection metering facilities at the Wetzel County Interconnect — consisting of three runs of 12-inch ultrasonic flow meters and gas chromatographs — provide the primary measurement data for determining FL&U on the Ridgeline system. The accuracy and calibration of these meters directly affect the L&U component of FL&U, because any systematic measurement error at the receipt point will appear as a corresponding over-count or under-count in the L&U calculation. The tariff will specify the metering accuracy standards to which the interconnection meters will be maintained, the frequency of meter calibration, and the methodology for adjusting FL&U calculations to account for any identified meter inaccuracies. This is also relevant to the allocation of measurement losses between the Ridgeline and ATPC systems at the interconnection point, as noted in Section III.C.
Coordination with Penalty Revenue Crediting (Deficiency Item No. 10). The tariff will include a provision specifying that any revenues from operational flow order ("OFO") penalties or other penalty mechanisms are not to be commingled with FL&U accounts. OFO penalty revenues are subject to separate crediting requirements under FERC precedent and must be tracked and distributed separately from FL&U over-recovery and under-recovery balances. The tariff will establish separate accounting for FL&U and penalty revenue to ensure transparency and prevent cross-subsidization.
V. Analysis of Key Design Considerations
A. In-Kind vs. Cash Reimbursement
As noted in Section IV.A, we recommend in-kind percentage retention as the structure for the FL&U tracker mechanism. This recommendation is based on the following considerations:
Administrative Simplicity. In-kind retention is significantly simpler to administer than cash reimbursement. Under in-kind retention, the pipeline retains a percentage of each shipper's gas at the receipt point, and no separate invoicing, pricing, or payment processing is required for fuel costs. The retention is automatically reflected in the shipper's scheduled and delivered quantities. Under cash reimbursement, by contrast, the pipeline would need to track fuel costs separately, value the gas consumed at a market index price, generate monthly invoices for each shipper, process payments, and manage any disputes over pricing or billing. The administrative burden and potential for billing errors are substantially greater under a cash reimbursement model.
Insulation from Commodity Price Volatility. In-kind retention insulates both the pipeline and shippers from commodity price volatility. Under in-kind retention, the pipeline receives gas in the physical quantity needed for fuel and system losses, without reference to the market price of gas. Under cash reimbursement, the amount invoiced to shippers fluctuates with the market price of gas, creating billing variability that may be undesirable for both the pipeline (which bears collection risk in periods of high prices) and shippers (w

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