PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 1601 K Street NW, Suite 900 Washington, DC 20006
MEMORANDUM
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I. Executive Summary
This memorandum addresses Deficiency Item 3 as identified in the January 19, 2023 Deficiency Letter issued by the Federal Energy Regulatory Commission's Office of Energy Market Regulation (authored by Dr. Miriam Okafor, Lead Economic Analyst), which found that the initial tariff application filed by Ridgeline Midstream Services LLC ("Ridgeline" or the "Company") on May 12, 2022, under Docket Nos. RP22-847-000 and RP22-847-001, failed to include a derivation of the interruptible transportation ("IT") rate under Rate Schedule IT-1 of the proposed FERC Gas Tariff, Original Volume No. 1. The Deficiency Letter specifically required Ridgeline to provide "a complete derivation of the interruptible transportation rate, including the methodology used to derive the IT rate from the firm transportation rate, the relationship between the two rates, and the proposed IT revenue crediting mechanism." This memorandum provides that derivation in full analytical detail, together with supporting legal and regulatory analysis, for inclusion in the redesigned tariff filing.
The original filing proposed only a firm transportation ("FT") rate under Rate Schedule FT-1. Specifically, Ridgeline proposed a recourse rate of $0.2265 per Dth, consisting of a reservation component of $0.2223 per Dth and a usage component of $0.0042 per Dth. That rate was derived from a total cost of service of $97.36 million and billing determinants calculated at a 100% load factor, yielding 438,000,000 Dth per year based on the system's design capacity of 1,200,000 Dth per day multiplied by 365 days. The original filing contained no separate IT rate derivation, no proposed IT rate schedule, and no discussion of the methodology by which the IT rate would be calculated from the FT rate. This omission was among the more significant deficiencies identified by Commission Staff.
Since the original filing, Ridgeline has undertaken a comprehensive tariff redesign in coordination with Braswell Energy Consulting Group LLC ("Braswell"), engagement number BEC-2023-0041, under the direction of Dr. Raymond Braswell. The tariff redesign has revised the overall rate framework in several material respects. The revised total cost of service is $103.15 million, reflecting updated capital cost data, revised depreciation schedules, and adjustments to operating expenses. The revised billing determinants are calculated at a 75% load factor, yielding 328,500,000 Dth per year. The revised FT recourse rate is $0.3140 per Dth, consisting of a reservation component of $0.3102 per Dth and a usage component of $0.0038 per Dth. The revised return on equity ("ROE") is 12.50%, reduced from the originally proposed 14.00%, and the revised weighted average cost of capital ("WACC") is 9.2375%.
This memorandum derives the IT rate from the revised FT rate using the Commission's standard 100% load factor equivalent methodology. It further addresses the regulatory and legal framework governing IT rate derivation, analyzes the relationship between the firm and interruptible transportation rates, proposes a detailed IT revenue crediting methodology, and examines FERC policy on IT rate floors and ceilings. The memorandum also compares the proposed IT rate design to the positions taken by intervenors in this proceeding — including the Appalachian Trunk Pipeline Company, LLC, the Mountainside Gas Producers Coalition, and the Clearwater Municipal Gas Authority — and addresses the interaction between the IT rate derivation and other outstanding deficiency items.
Recommendation: We recommend that Ridgeline propose a daily IT rate equal to the FT-1 100% load factor equivalent rate — that is, the daily reservation rate component of $0.3102 per Dth, plus the usage charge of $0.0038 per Dth, totaling $0.3140 per Dth for each Dth of IT service transported on any given day. We further recommend that IT revenues be credited to firm shippers through an annual IT Revenue Crediting Mechanism ("ITRC") that passes through 100% of net IT revenues on a pro rata basis, consistent with Commission precedent and the positions advanced by certain intervenors. This approach is well-grounded in Commission policy, responsive to the specific requirements articulated in Deficiency Item 3, and defensible before the Administrative Law Judge and the Commission on review.
II. Background
A. The Ridgeline Pipeline System
Ridgeline Midstream Services LLC owns and operates a 187-mile, 24-inch-diameter high-pressure natural gas transmission pipeline (the "Ridgeline Pipeline System" or the "System") located in northern West Virginia and southwestern Pennsylvania. The System was constructed to provide open-access interstate transportation of natural gas from production areas in the Marcellus and Utica shale formations to interconnections with downstream pipeline systems serving markets in the Mid-Atlantic and Northeast United States.
The System originates at the Wetzel County Interconnect, located in Wetzel County, West Virginia, at approximate coordinates of 39.6120° N latitude and 80.7540° W longitude. The Wetzel County Interconnect serves as the primary receipt point, connecting with gathering systems operated by multiple independent producers and larger midstream companies active in the Marcellus shale play in Wetzel, Tyler, and Doddridge counties. The System terminates at the Waynesburg Compressor Station, located in Greene County, Pennsylvania, at approximate coordinates of 39.8965° N latitude and 80.1810° W longitude. The Waynesburg Compressor Station serves as the primary delivery point and provides an interconnection with the Appalachian Trunk Pipeline Company, LLC ("ATPC") system, which in turn provides access to markets in the eastern Pennsylvania, New Jersey, and New York metropolitan areas.
The System has a design capacity of 1.2 billion cubic feet per day ("Bcf/d"), equivalent to 1,200,000 dekatherms per day ("Dth/d") at an assumed heat content of 1,000 BTU per cubic foot. Current throughput on the System is approximately 680 million cubic feet per day ("MMcf/d"), representing approximately 56.67% utilization of design capacity. This significant margin of unused capacity is attributable to several factors, including the phased nature of firm subscription commitments from anchor shippers, the ongoing development of upstream gathering infrastructure in the receipt area, and general market conditions affecting natural gas production volumes in the Appalachian Basin during 2022 and 2023.
The System is equipped with three compressor stations: the Wetzel Station (located near the receipt point at the Wetzel County Interconnect), the Mannington Station (located at approximately milepost 87 near Mannington, Marion County, West Virginia), and the Waynesburg Station (co-located with the delivery point at the Waynesburg Compressor Station in Greene County, Pennsylvania). The aggregate installed compression across the three stations is 45,000 horsepower ("HP"). The compressor stations are configured primarily with natural gas-fired reciprocating compressor units, with electric motor-driven backup compression at the Waynesburg Station.
The System was placed into service on October 1, 2021. The original construction cost of the System was approximately $587.2 million, which included pipeline construction, compressor station construction, right-of-way acquisition, environmental mitigation, and capitalized allowance for funds used during construction ("AFUDC"). Construction was completed on schedule and within budget, with no material cost overruns or change orders requiring supplemental certificate authorization.
Ridgeline Midstream Services LLC is a West Virginia limited liability company with its principal office located at 700 Kanawha Boulevard East, Suite 1400, Charleston, West Virginia 25301. The Company's sole member is Dunmore Energy Holdings Ltd., a Cayman Islands exempted limited company registered under Cayman Registry Number CR-381204. Dunmore Energy Holdings Ltd. is controlled by Patricia Dunmore, who holds a 72% equity interest. The remaining 28% equity interest is held by institutional investors through a series of preferred membership interests, the details of which are set forth in the Company's ownership structure filing with the Commission.
Ridgeline's federal Employer Identification Number is 87-4231956, and its FERC Code is 960442. The Company holds a blanket certificate of public convenience and necessity authorizing open-access transportation service under Part 284, Subpart G of the Commission's regulations, 18 C.F.R. Part 284, Subpart G, issued pursuant to Section 7(c) of the Natural Gas Act, 15 U.S.C. § 717f(c). The System is subject to the Commission's jurisdiction over rates and charges for interstate natural gas transportation under Sections 4 and 5 of the Natural Gas Act, 15 U.S.C. §§ 717c, 717d.
B. The Deficiency Letter and Procedural Posture
Ridgeline filed its initial tariff application with the Commission on May 12, 2022, proposing a FERC Gas Tariff, Original Volume No. 1, containing Rate Schedule FT-1 (Firm Transportation Service) and various General Terms and Conditions. The filing was assigned Docket Nos. RP22-847-000 and RP22-847-001 and was noticed in the Federal Register on May 26, 2022. Multiple parties filed timely motions to intervene and protests during the comment period, as described further below.
On January 19, 2023, the Commission's Office of Energy Market Regulation issued a Deficiency Letter identifying fourteen (14) separate deficiencies in the initial tariff filing. The Deficiency Letter was authored by Dr. Miriam Okafor, Lead Economic Analyst, and was co-signed by the Director of the Office of Energy Market Regulation. The fourteen deficiency items addressed a wide range of issues, including cost-of-service methodology, rate design assumptions, tariff provisions, and informational requirements. Deficiency Item 3 is the subject of this memorandum and specifically required Ridgeline to provide:
"A complete derivation of the interruptible transportation rate, including the methodology used to derive the IT rate from the firm transportation rate, the relationship between the two rates, and the proposed IT revenue crediting mechanism. The initial filing does not include a Rate Schedule IT-1 or any discussion of interruptible transportation rate derivation, notwithstanding the applicant's obligation under 18 C.F.R. Part 284, Subpart G to offer both firm and interruptible transportation service on an open-access basis."
Following issuance of the Deficiency Letter, Administrative Law Judge Clara Whitfield issued an order on February 6, 2023, staying the procedural schedule pending Ridgeline's response to the Deficiency Letter. The stay order suspended all discovery deadlines, testimony filing dates, and the hearing schedule that had previously been established.
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 3, the partial response described only a general framework for IT rate derivation, stating that Ridgeline intended to derive the IT rate from the FT rate using the Commission's standard 100% load factor equivalent methodology and that Ridgeline would implement an IT revenue crediting mechanism. The partial response did not provide the actual IT rate derivation, the specific rate level, or the detailed mechanics of the proposed revenue crediting mechanism. The partial response acknowledged that a full IT rate derivation would be provided as part of the comprehensive tariff redesign then being initiated.
Following the partial response, Ridgeline engaged Braswell Energy Consulting Group LLC on April 15, 2023, under engagement number BEC-2023-0041, to support a comprehensive redesign of the tariff and rate framework. The Braswell engagement encompasses the full cost-of-service analysis, rate design, and tariff drafting for the revised filing, including the IT rate derivation that is the subject of this memorandum. Dr. Raymond Braswell, a nationally recognized expert in natural gas pipeline rate design with over thirty years of experience before the Commission, is leading the Braswell engagement team.
The procedural schedule has been extended on three occasions. ALJ Whitfield granted an initial extension on June 12, 2023, a second extension on October 30, 2023, and a third extension on March 4, 2024. The current filing deadline for the redesigned tariff is February 21, 2025. The proceeding has been classified as "dormant" by the Commission since September 8, 2023, which status will be revised upon Ridgeline's filing of the redesigned tariff.
C. Intervenor Positions on IT Rate
Several intervenors have taken positions relevant to the IT rate derivation. We summarize each party's position below for reference in the analysis that follows.
Appalachian Trunk Pipeline Company, LLC ("ATPC"). ATPC is an existing FERC-jurisdictional interstate natural gas pipeline that interconnects with the Ridgeline System at the Waynesburg Compressor Station. ATPC is represented by William Pratt of Kellner, Royce & Dillard LLP, One PPG Place, Suite 2800, Pittsburgh, Pennsylvania 15222. ATPC filed a protest on August 15, 2022, and subsequently filed answering testimony on January 9, 2023. ATPC's primary concern in this proceeding relates to the allocation of interconnection costs (approximately $14.7 million), which ATPC contends are disproportionately allocated to ATPC's existing shippers. With respect to the IT rate, ATPC's answering testimony, sponsored by Sandra K. Fenton, ATPC's Director of Rates, criticized the absence of an IT rate in the original filing and argued that any IT rate must include a mechanism preventing Ridgeline from using IT service to circumvent firm service commitments. Specifically, ATPC expressed concern that Ridgeline could offer IT service to shippers at the Waynesburg delivery point in a manner that effectively displaces firm capacity on the ATPC system. ATPC's rate witness also testified in support of an ROE of 10.75% for Ridgeline, which, if adopted, would reduce both the FT and IT rates proportionally.
Mountainside Gas Producers Coalition ("MGPC"). MGPC is a coalition of fourteen independent natural gas producers operating in the Marcellus and Utica shale formations in West Virginia and southwestern Pennsylvania. MGPC intervened on July 28, 2022, and is represented by Rebekah Montague of Whitmore & Sable LLP. MGPC's rate expert, Dr. Eleanor Vasquez, filed answering testimony presenting MGPC's position on a number of rate design issues. With respect to the IT rate, MGPC's answering testimony argued that (i) the IT rate should be set no higher than the FT rate expressed on a 100% load factor equivalent basis, and (ii) IT revenues should be credited 100% to firm shippers through an explicit crediting mechanism. Dr. Vasquez's testimony also proposed an overall rate ceiling of approximately $0.2560 per Dth, based on MGPC's preferred ROE of 11.25% and higher load factor assumptions of 85% or greater. While the IT rate derivation is a function of the underlying FT rate and is therefore somewhat secondary to the broader rate design dispute, MGPC's positions on load factor and ROE directly affect the level at which the IT rate would be set.
Clearwater Municipal Gas Authority ("CMGA"). CMGA is a municipal gas distribution utility serving approximately 23,000 residential and commercial customers in Clearwater, Greene County, Pennsylvania. CMGA intervened on August 1, 2022, and is represented by Stephen Greer of Fordham Municipal Law Group PC. CMGA's position generally supports ATPC's positions in this proceeding. CMGA's primary concern is the potential for rate increases on ATPC's system resulting from the interconnection with Ridgeline, which could flow through to CMGA's retail customers. CMGA filed initial testimony through its general manager, Dennis Ott, but did not file independent testimony on IT rates. CMGA has indicated that it defers to ATPC and MGPC on the technical issues of IT rate design.
FERC Trial Staff. Trial Staff is participating in this proceeding under the direction of Jonathan Briggs, Lead Trial Attorney, Office of Energy Market Regulation. Trial Staff has not filed specific testimony addressing IT rate methodology. However, the requirements articulated in Deficiency Item 3 of the Deficiency Letter reflect Staff's view that a complete IT rate derivation, including the methodology, the rate level, and the revenue crediting mechanism, is essential to the Commission's evaluation of the tariff filing. Dr. Miriam Okafor, Lead Economic Analyst, who authored the Deficiency Letter, is expected to review the IT rate derivation when it is filed. Calderwood & Harkness has sought an informal conference with Trial Staff (by letter from George Trujillo to Jonathan Briggs dated May 18, 2023) to discuss Staff's expectations regarding IT rate design before finalizing the tariff language. A response from Trial Staff is pending.
III. Legal and Regulatory Framework for IT Rate Derivation
A. Natural Gas Act Statutory Authority
The Commission's authority to regulate the rates and charges for interstate natural gas transportation service derives from Sections 4 and 5 of the Natural Gas Act ("NGA"), 15 U.S.C. §§ 717c and 717d. Section 4 of the NGA requires that all rates and charges for the transportation of natural gas in interstate commerce be "just and reasonable" and prohibits any "undue preference or advantage" or "unreasonable difference in rates" between similarly situated shippers. 15 U.S.C. § 717c(a)-(b). Section 5 authorizes the Commission to investigate existing rates and, upon a finding that any rate is "unjust, unreasonable, unduly discriminatory, or preferential," to determine and fix the just and reasonable rate. 15 U.S.C. § 717d(a).
The Commission's regulations at 18 C.F.R. Part 154 establish detailed requirements for the filing of rate schedules by interstate natural gas pipelines, including requirements for cost-of-service support, rate design workpapers, and tariff provisions. Section 154.312 specifies the information that must accompany a rate change filing, including a "detailed derivation of all rates," which encompasses both firm and interruptible rates. 18 C.F.R. § 154.312(b). This provision is the regulatory basis for the Commission's requirement, reflected in Deficiency Item 3, that Ridgeline provide a complete derivation of its IT rate.
The Commission's regulations at 18 C.F.R. Part 284, Subpart G govern blanket certificate authorizations for open-access transportation service by interstate natural gas pipelines. Under Part 284, Subpart G, a pipeline holding a blanket certificate is required to provide transportation service on an open-access, non-discriminatory basis. Critically, the regulations require that open-access pipelines offer both firm and interruptible transportation service. 18 C.F.R. § 284.221(a). The obligation to offer IT service is a fundamental component of the open-access framework established by the Commission, and a pipeline that fails to include an IT rate in its tariff filing has not satisfied its obligations under Part 284.
The open-access framework was significantly shaped by the Commission's landmark rulemaking in Order No. 636, issued in 1992. Pipeline Service Obligations and Revisions to Regulations Governing Self-Implementing Transportation Under Part 284 of the Commission's Regulations, Order No. 636, 57 Fed. Reg. 13,267 (Apr. 16, 1992), FERC Stats. & Regs. ¶ 30,939 (1992), order on reh'g, Order No. 636-A, 57 Fed. Reg. 36,128 (Aug. 12, 1992), FERC Stats. & Regs. ¶ 30,950 (1992), order on reh'g, Order No. 636-B, 57 Fed. Reg. 57,911 (Dec. 8, 1992), 61 FERC ¶ 61,272 (1992), aff'd in relevant part, United Distribution Cos. v. FERC, 88 F.3d 1105 (D.C. Cir. 1996). Order No. 636 restructured the natural gas pipeline industry by requiring pipelines to unbundle their sales and transportation functions, mandating the provision of firm and interruptible transportation on an open-access basis, and establishing the rate design principles that continue to govern the derivation of IT rates today. Of particular relevance to this memorandum, Order No. 636 established the foundational principle that IT service is available only to the extent that pipeline capacity is not reserved by firm shippers, and that the IT rate must be derived from the FT rate in a manner that preserves the value of firm capacity and the firm/interruptible service hierarchy.
B. FERC Policy on IT Rate Derivation — The "100% Load Factor Equivalent" Method
The Commission has developed a well-established methodology for deriving IT rates from firm transportation rates, commonly referred to as the "100% load factor equivalent" method. Under this methodology, the daily IT rate is set equal to the daily equivalent of the FT rate calculated at 100% load factor. The rationale for this approach is straightforward: IT shippers pay for transportation service on a per-day, as-available basis, and they should pay no less on a per-unit basis than what a firm shipper pays at full utilization of its contracted capacity. By setting the IT rate equal to the 100% load factor equivalent of the FT rate, the Commission ensures that IT service is priced at parity with firm service on a volumetric basis, preserving the economic incentive for shippers to contract for firm capacity rather than relying on interruptible service.
The formula for deriving the IT rate under the 100% load factor equivalent method is:
IT Daily Rate = (FT Reservation Rate per Dth/day) + (FT Usage Rate per Dth)
For pipelines that express reservation rates on a monthly basis, the conversion to a daily equivalent requires dividing the monthly reservation rate by the number of days in the month. For pipelines that express reservation rates on an annual basis, the daily equivalent is the annual reservation rate divided by 365 days. In Ridgeline's case, the FT reservation rate is expressed on a per-Dth-per-day basis (i.e., per Dth of daily contract quantity), so no conversion is necessary.
Under the original filing parameters, the implicit IT rate — had it been derived and stated in the tariff — would have been calculated as follows:
IT Daily Rate = $0.2223/Dth (reservation) + $0.0042/Dth (usage) = $0.2265/Dth/day
This rate was never formally derived or stated in the original filing, which is the deficiency that this memorandum addresses.
Under the revised tariff redesign parameters, the IT rate is derived as follows:
IT Daily Rate = $0.3102/Dth (reservation) + $0.0038/Dth (usage) = $0.3140/Dth/day
The derivation is further detailed in Section IV of this memorandum.
The Commission has applied the 100% load factor equivalent method consistently across numerous pipeline proceedings over the past three decades. In Crowne Albany Group, 55 FERC ¶ 61,446 (1991), the Commission established that the IT rate should equal the sum of the daily reservation equivalent and the usage charge, reasoning that this methodology "ensures that interruptible shippers pay the same per-unit charge as firm shippers operating at full load factor, thereby preserving the economic value of firm capacity commitments." The Commission reaffirmed this methodology in Tennessee Gas Pipeline Co., 76 FERC ¶ 61,022 (1996), Drayton Group., 97 FERC ¶ 61,221 (2001), and Ashgrove Corporation, 112 FERC ¶ 61,295 (2005), among numerous other proceedings. The methodology has been upheld by the courts as reasonable and consistent with the NGA's just-and-reasonable standard. See Williston Basin Interstate Pipeline Co. v. FERC, 165 F.3d 54, 60-62 (D.C. Cir. 1999) (affirming Commission's use of 100% load factor equivalent method for IT rate derivation).
The 100% load factor equivalent method is the standard methodology expected by Commission Staff, and departure from this methodology would require justification and would likely invite challenge from intervenors. Accordingly, we recommend that Ridgeline adopt this standard methodology without modification.
C. FERC Policy on IT Rate Floors
The Commission has consistently held that the IT rate cannot be set below the FT rate expressed on a 100% load factor equivalent basis. This minimum IT rate, commonly referred to as the "IT rate floor," serves as a critical safeguard in the firm/interruptible service hierarchy. The purpose of the IT rate floor is to prevent IT service from being offered at a discount to firm service, which would undermine the value of firm capacity and create a perverse incentive for shippers to avoid firm commitments in favor of lower-cost interruptible service.
The Commission articulated the policy basis for the IT rate floor in Williams Natural Gas Co., 77 FERC ¶ 61,277 (1996), where it stated:
"The interruptible rate floor is a necessary component of the open-access framework established by Order No. 636. If interruptible service were priced below the firm rate on a per-unit basis, shippers would have an economic incentive to rely on interruptible service rather than contracting for firm capacity, thereby shifting the risk of underutilization to the pipeline and, ultimately, to firm shippers who bear the demand-charge obligation regardless of their actual throughput."
The Commission has reaffirmed this policy in numerous subsequent proceedings. In Panhandle Eastern Pipe Line Co., 83 FERC ¶ 61,051 (1998), the Commission rejected a proposal to set the IT rate below the FT rate floor, finding that such a rate would be "unjust and unreasonable" and "unduly discriminatory" against firm shippers. Similarly, in Eastern Shore Natural Gas Co., 132 FERC ¶ 61,204 (2010), the Commission reiterated that "the IT rate floor ensures that the economic hierarchy between firm and interruptible service is maintained, consistent with the principles of Order No. 636."
Negotiated IT rates below the floor are generally not permitted under Commission policy. While pipelines may negotiate rates with individual shippers under the Commission's negotiated rate policy established in Alternatives to Traditional Cost-of-Service Ratemaking for Natural Gas Pipelines; Regulation of Negotiated Transportation Services of Natural Gas Pipelines, 74 FERC ¶ 61,076 (1996), reh'g denied, 75 FERC ¶ 61,024 (1996), negotiated rates for IT service that fall below the 100% load factor equivalent of the recourse FT rate have been disfavored. The Commission has permitted discounted IT rates only in narrow circumstances — for example, where a pipeline is operating at very low utilization and the marginal cost of IT service is substantially below the average cost reflected in the recourse rate — and only upon a specific showing of just and reasonable grounds.
As applied to Ridgeline, the IT rate floor is $0.3140 per Dth, which equals the 100% load factor equivalent of the revised FT recourse rate. Because the proposed IT rate is set at this level — i.e., the IT maximum recourse rate equals the IT rate floor — Ridgeline's proposal is fully consistent with Commission policy. Any future adjustments to the FT rate, whether through settlement, hearing, or subsequent rate case proceedings, will require a corresponding adjustment to the IT rate floor.
D. FERC Policy on IT Revenue Crediting
The Commission generally requires that revenues collected from IT service be credited to firm shippers, either through the cost-of-service calculation or through a separate crediting mechanism. The policy rationale for IT revenue crediting is rooted in the cost-allocation principles underlying the Commission's rate design framework: because the fixed costs of the pipeline system (including return on equity, depreciation, taxes, and fixed operating expenses) are recovered primarily through the FT reservation charge, revenues generated from IT service — which, by definition, utilizes capacity that is not reserved by firm shippers — represent an incremental revenue stream that should inure to the benefit of firm shippers who bear the fixed-cost obligation.
The Commission has recognized two principal approaches to IT revenue crediting:
Pre-determined fixed credit method. Under this approach, a fixed amount of estimated IT revenue is incorporated into the cost-of-service calculation as a revenue credit, reducing the total revenue requirement and, consequently, the firm recourse rate. This method has the advantage of simplicity and provides immediate rate relief to firm shippers by lowering the FT rate. However, it carries the risk of material inaccuracy: if actual IT revenues exceed the estimate, firm shippers do not receive the benefit of the excess revenue; if actual IT revenues fall short, the pipeline absorbs the shortfall (or, in some cases, the shortfall may result in under-recovery that is addressed in a subsequent rate proceeding). In the original Ridgeline filing, approximately $16.10 million was included as revenue credit adjustments in the total cost of service, though this amount was not specifically identified as IT revenue credits and may have included other categories of revenue offsets. In the revised filing under the tariff redesign, $6.00 million in revenue credits has been included, reflecting a more conservative estimate.
Actual-revenue periodic true-up method. Under this approach, IT revenues are tracked during the year and credited to firm shippers periodically — typically on an annual or semi-annual basis — through a true-up mechanism filed with the Commission. This method has the advantage of accuracy: firm shippers receive the actual IT revenues generated, rather than an estimate that may prove too high or too low. It also provides transparency, as the true-up filing is a public document subject to Commission review and comment by interested parties. The disadvantage is that the crediting occurs with a lag, and the FT recourse rate does not reflect the benefit of IT revenues until the true-up credits are applied.
The Commission has expressed a preference for mechanisms that ensure firm shippers receive the full benefit of IT revenues, particularly in circumstances where the pipeline operates significantly below its design capacity and where, consequently, substantial capacity may be available for IT service. See, e.g., Northwest Pipeline Corp., 87 FERC ¶ 61,266 (1999) (approving an annual IT revenue crediting mechanism and noting that "where a pipeline has significant unused capacity, the volume of IT service — and the revenues generated therefrom — may be material, and a mechanism that ensures the pass-through of actual revenues is preferable to a fixed estimate that may not accurately reflect market conditions"); Questar Pipeline Co., 116 FERC ¶ 61,187 (2006) (approving a semi-annual IT revenue crediting mechanism with true-up provisions). Ridgeline's current utilization rate of approximately 56.67% suggests that significant capacity is available for IT service, making an actual-revenue true-up mechanism particularly appropriate.
We note that the IT revenue crediting mechanism may interact with the penalty revenue crediting mechanism that is the subject of Deficiency Item 10. Under Commission policy, penalty revenues (e.g., revenues from scheduling penalties, overrun charges, and similar penalty provisions) are also generally required to be credited to non-offending shippers. To the extent that both IT revenues and penalty revenues are subject to crediting, it may be administratively efficient to consolidate the two crediting mechanisms into a single annual filing. This consolidation is addressed further in Section VII.C of this memorandum.
IV. Proposed IT Rate Derivation
A. Derivation from the Revised Firm Transportation Rate
The derivation of the IT rate begins with the revised firm transportation rate established through the tariff redesign. The key parameters of the revised rate framework, as developed in coordination with Braswell Energy Consulting Group LLC, are as follows:
Total Cost of Service (Revised): $103,150,000
The revised total cost of service reflects updated capital cost data (including a revised original cost rate base, updated depreciation rates, and current-period additions to plant), revised operating and maintenance expenses, revised administrative and general expenses, and the revised ROE and capital structure described below. The cost-of-service derivation is detailed in the Braswell cost-of-service workpapers (BEC-2023-0041, Workpaper Set COS-Rev-2), which have been provided separately to the engagement team and are incorporated by reference herein. The increase from the original total cost of service of $97,360,000 to the revised total cost of service of $103,150,000 is attributable primarily to (i) an increase in depreciation expense resulting from revised composite depreciation rates, (ii) higher-than-projected operating and maintenance expenses for the compressor stations, and (iii) an increase in ad valorem property taxes in West Virginia and Pennsylvania, partially offset by the reduction in ROE from 14.00% to 12.50%.
Billing Determinants (Revised): 328,500,000 Dth/yr
The revised billing determinants are calculated based on the system's design capacity of 1,200,000 Dth/d, multiplied by 365 days per year, multiplied by a load factor of 75%:
1,200,000 Dth/d × 365 days × 0.75 = 328,500,000 Dth/yr
The decision to use a 75% load factor, rather than the 100% load factor used in the original filing, reflects Ridgeline's revised assessment of expected system utilization during the initial years of operation. The 75% load factor is intended to be a more realistic estimate of actual firm shipper utilization, reducing the risk of revenue under-recovery that would result from billing determinants based on 100% utilization that is unlikely to materialize. This change is consistent with Commission precedent permitting pipelines to use billing determinants based on expected load factors below 100%, provided the resulting rates are just and reasonable. The load factor assumption is the subject of Deficiency Item 4 and is discussed in Section VIII.B of this memorandum.
Revised FT Reservation Rate: $0.3102/Dth
The revised FT reservation rate is derived by dividing the demand-charge revenue requirement (the portion of the total cost of service allocated to the reservation charge) by the billing determinants. Under the revised rate design, the demand-charge revenue requirement is approximately $101,900,700, and the reservation rate is:
$101,900,700 ÷ 328,500,000 Dth/yr = $0.3102/Dth (per Dth of daily contract quantity, per day)
Revised FT Usage Rate: $0.0038/Dth
The revised FT usage rate is derived by dividing the commodity-charge revenue requirement (the portion of the total cost of service allocated to variable costs recovered through the usage charge) by the billing determinants:
$1,249,300 ÷ 328,500,000 Dth/yr = $0.0038/Dth
Total Revised FT Rate: $0.3140/Dth
The total revised FT rate is the sum of the reservation and usage components:
$0.3102 + $0.0038 = $0.3140/Dth
Revised ROE: 12.50%
The revised ROE of 12.50% is lower than the originally proposed ROE of 14.00%, reflecting updated proxy group analyses, current capital market conditions, and a recognition that the originally proposed ROE was likely to face significant challenge from intervenors and Trial Staff. The ROE is the subject of extensive analysis in the Braswell rate-of-return study (BEC-2023-0041, Workpaper Set ROR-Rev-1) and in a separate Calderwood & Harkness memorandum on ROE (C&H Matter No. 1016-00005, Memo dated August 2023). MGPC has advocated an ROE of 11.25%, while ATPC has advocated 10.75%; the ultimate ROE will be determined through settlement or hearing.
Revised WACC: 9.2375%
The revised WACC of 9.2375% reflects the revised ROE of 12.50%, a cost of debt of 5.25% (based on the weighted average cost of Ridgeline's outstanding long-term debt), and a capital structure of approximately 55% equity and 45% debt.
IT Rate Derivation — 100% Load Factor Equivalent Method:
Applying the Commission's standard 100% load factor equivalent methodology to the revised FT rate:
IT Daily Rate = FT Daily Reservation Rate + FT Daily Usage Rate
IT Daily Rate = $0.3102/Dth + $0.0038/Dth
IT Daily Rate = $0.3140/Dth
The FT reservation rate of $0.3102 per Dth per day is already expressed as the charge per Dth of daily contract quantity. Under Ridgeline's rate design, a firm shipper holding a contract for 100,000 Dth/d of capacity pays a daily reservation charge of $0.3102 per Dth of daily contract quantity — i.e., $31,020 per day (100,000 Dth × $0.3102/Dth) — regardless of whether the shipper actually flows gas on any given day. An IT shipper, by contrast, pays only for the volumes actually transported on each day. The IT rate of $0.3140 per Dth ensures that, for each Dth transported on an interruptible basis, the IT shipper pays the same per-unit amount as a firm shipper operating at 100% of its contracted capacity.
Comparison to Original Filing Parameters:
It is instructive to compare the IT rate under the revised filing to the implicit IT rate that would have applied under the original filing parameters:
The revised IT rate of $0.3140 per Dth is approximately 38.6% higher than the implicit IT rate of $0.2265 per Dth that would have applied under the original filing parameters. The increase is driven primarily by the shift from 100% to 75% load factor billing determinants (which reduces the denominator in the rate calculation by 25%, thereby increasing the rate) and the increase in total cost of service (from $97.36 million to $103.15 million), partially offset by the reduction in ROE from 14.00% to 12.50%. The net effect of the lower ROE is relatively modest because the increase in total cost of service from other components more than compensates for the ROE reduction.
B. IT Rate as Maximum Recourse Rate
The proposed IT rate of $0.3140 per Dth will serve as the maximum recourse rate for interruptible transportation service under Rate Schedule IT-1. Under Commission policy, the recourse rate is the default rate that applies to any shipper that does not negotiate a different rate with the pipeline. The recourse rate also serves as the benchmark against which negotiated rates are evaluated to ensure that they are just and reasonable and not unduly discriminatory.
Ridgeline may, at its discretion, offer IT service at negotiated rates, provided that such rates are equal to or above the IT rate floor. As discussed in Section III.C above, the Commission has consistently held that the IT rate floor is the 100% load factor equivalent of the FT recourse rate. Under the revised tariff, the IT rate floor is therefore $0.3140 per Dth — the same as the IT maximum recourse rate.
The identity of the IT maximum rate and the IT rate floor is a direct consequence of the rate design methodology. Because the FT rate is already derived at 75% load factor, and the IT rate is set equal to the total FT rate on a 100% load factor equivalent basis, the IT rate represents both the maximum rate (the highest rate Ridgeline may charge for recourse IT service) and the minimum rate (the lowest rate at which IT service may be offered without undermining the firm/interruptible service hierarchy). In practical terms, this means that IT service under Rate Schedule IT-1 will be offered at a single rate of $0.3140 per Dth, with no room for discounting below this level. This is consistent with Commission practice for new pipeline systems where there is limited historical basis for determining whether discounted IT rates would be justified.
We have considered whether Commission policy permits the IT maximum rate to exceed the FT-equivalent rate — that is, whether Ridgeline could propose an IT maximum rate above $0.3140 per Dth. Generally, the Commission has not permitted IT maximum rates that exceed the 100% load factor equivalent of the FT rate, absent special circumstances such as the provision of premium IT service (e.g., enhanced scheduling flexibility, priority among IT shippers, or guaranteed minimum service levels). No such premium service is proposed here. Accordingly, we recommend that the IT maximum rate be set equal to the IT rate floor at $0.3140 per Dth.
C. IT Billing and Scheduling Provisions
The following billing and scheduling provisions are proposed for inclusion in Rate Schedule IT-1 and the accompanying General Terms and Conditions:
Daily Billing. IT service will be billed on a daily basis, based on the actual quantity of natural gas transported on each day. The billing quantity for each day will be the lesser of (a) the shipper's confirmed nomination for that day, and (b) the actual metered quantity transported. Invoices will be rendered monthly, reflecting the aggregate of daily charges for the billing month, together with applicable surcharges.
Scheduling Subject to Availability. IT service is available only to the extent that pipeline capacity is not reserved by firm shippers. IT nominations will be scheduled after all firm nominations have been confirmed, including primary firm nominations, secondary firm nominations (i.e., firm capacity used for alternative receipt or delivery points), and any capacity release transactions. IT service is provided on an "as-available" basis, and no shipper has a right to continued IT service on any future day based on prior-day scheduling.
Nomination Timelines. IT shippers may nominate capacity on a day-ahead or intraday basis, consistent with the nomination timelines established by the North American Energy Standards Board Wholesale Gas Quadrant ("NAESB WGQ") Version 3.2 standards. Specifically, IT nominations may be submitted during the Timely Nomination Cycle, the Evening Nomination Cycle, and the Intraday Nomination Cycles (Intraday 1, Intraday 2, and Intraday 3), subject to available capacity at the time of nomination. This provision addresses the nomination timeline requirements identified in Deficiency Item 6.
Scheduling Priority Among IT Shippers. In the event that IT nominations exceed available capacity, scheduling priority among IT shippers will be determined based on the economic value of each nomination. Nominations at higher rates will be scheduled before nominations at lower rates. Because the IT maximum rate and IT rate floor are identical under the current proposal ($0.3140/Dth), all IT nominations under the recourse rate will be at the same rate level, and scheduling will be on a pro rata basis. If negotiated IT rates are permitted in the future at levels above the recourse rate, nominations at higher negotiated rates would receive scheduling priority over nominations at the recourse rate.
Curtailment and Interruption. IT service is subject to curtailment and interruption at any time, without advance notice, to accommodate firm service. The scheduling hierarchy for curtailment purposes is: (1) primary firm service (highest priority, curtailed last); (2) secondary firm service; (3) released firm capacity service; (4) IT service (lowest priority, curtailed first). Among IT shippers subject to curtailment, curtailment will be implemented in reverse order of price offered (lowest rate curtailed first). If rates are equal, curtailment will be applied on a pro rata basis among affected IT shippers.
D. IT Rate Design Table
The following table summarizes the proposed IT rate design:
The IT rate is subject to adjustment in the event that the underlying FT rate changes as a result of settlement negotiations, hearing, or a subsequent rate case proceeding. Any change to the total cost of service, load factor assumptions, or rate design allocation between demand and commodity components will require a corresponding recalculation of the IT rate.
V. IT Revenue Crediting Methodology
A. Overview of Proposed Crediting Mechanism
We propose that Ridgeline implement an annual IT Revenue Crediting Mechanism ("ITRC") to credit actual IT revenues to firm shippers. The ITRC is designed to satisfy the Commission's requirement, articulated in Deficiency Item 3, that the tariff filing include "the proposed IT revenue crediting mechanism." The ITRC is also responsive to intervenor positions, particularly MGPC's demand for 100% crediting of IT revenues to firm shippers.
The selection of an annual true-up mechanism, rather than a pre-determined fixed credit embedded in the cost of service, is based on the following considerations:
First, Ridgeline's current throughput is approximately 680 MMcf/d against a design capacity of 1.2 Bcf/d, representing 56.67% utilization. This indicates that a significant volume of unused capacity — potentially in excess of 500 MMcf/d — may be available for IT service on any given day. The volume of IT service is likely to fluctuate significantly based on market conditions, seasonal demand patterns, upstream production levels, and the pace at which firm subscription commitments are finalized. In these circumstances, a fixed pre-determined credit risks material over- or under-crediting. An annual true-up based on actual revenues avoids this risk.
Second, an annual true-up provides transparency and accountability. The ITRC filing will be a public document, subject to FERC review and comment by interested parties. Firm shippers will be able to verify that they are receiving the full benefit of IT revenues, and intervenors will have an opportunity to raise concerns if the crediting calculation is inaccurate or incomplete.
Third, the annual true-up approach is consistent with the Commission's stated preference in recent proceedings for actual-revenue crediting mechanisms, particularly for pipelines with significant unused capacity. As the Commission observed in Northwest Pipeline Corp., 87 FERC ¶ 61,266, at 62,085 (1999), "where a pipeline has significant unused capacity, the volume of IT service — and the revenues generated therefrom — may be material, and a mechanism that ensures the pass-through of actual revenues is preferable to a fixed estimate that may not accurately reflect market conditions."
Fourth, the annual true-up approach aligns with Ridgeline's broader tariff design philosophy of providing accurate and transparent rate signals. By removing imputed IT revenue from the base cost of service and crediting actual IT revenues through the ITRC, the tariff will present a more accurate picture of the cost-of-service components and the sources of revenue available to offset firm shippers' costs.
B. Mechanics of the IT Revenue Crediting Mechanism
The proposed ITRC will operate as follows:
1. Revenue Collection Period. The revenue collection period for the ITRC will be each calendar year, January 1 through December 31. For the first partial year of operation under Rate Schedule IT-1, the revenue collection period will run from the effective date of the tariff through December 31 of that year.
2. Revenue Pool. The revenue pool for the ITRC will consist of all revenues collected from IT service under Rate Schedule IT-1 during the revenue collection period, including revenues from IT service at the recourse rate and, if applicable, at negotiated rates above the recourse rate. The gross revenue pool will be reduced by the following deductions to arrive at the net IT revenue available for crediting:
(a) Variable costs directly attributable to IT service. These include fuel costs for compression attributable to IT volumes, electric power costs for compression attributable to IT volumes, and variable operation and maintenance expenses directly associated with IT throughput (e.g., metering, chemical treatment, and similar variable costs). Fixed costs of the pipeline system are not deducted, as these costs are recovered through the FT reservation charge and are not affected by the provision of IT service.
(b) Applicable surcharges collected and remitted. These include the Annual Charge Adjustment ("ACA") surcharge collected on IT volumes and remitted to the Commission, and any FL&U retainage amounts attributable to IT volumes (although FL&U is an in-kind retention rather than a monetary charge, the economic value of FL&U retainage on IT volumes will be accounted for in the revenue crediting calculation to ensure accuracy).
3. Credit Distribution. Net IT revenues will be credited to firm shippers on a pro rata basis, based on each firm shipper's contracted maximum daily quantity ("MDQ") as a percentage of the total contracted firm MDQ during the revenue collection period. The allocation formula is:
Credit to Firm Shipper i = Net IT Revenue × (MDQi ÷ Σ MDQall firm shippers)
Where MDQi is the time-weighted average MDQ of firm shipper i during the revenue collection period (to account for shippers whose contracts commence or terminate during the period), and Σ MDQall firm shippers is the sum of all firm shippers' time-weighted average MDQs during the period.
This pro rata allocation methodology is consistent with Commission precedent and ensures that all firm shippers benefit from IT revenues in proportion to their contribution to the fixed-cost revenue requirement through their reservation charge obligations.
4. Filing and True-Up. Ridgeline will file an annual IT Revenue Crediting Report with the Commission within ninety (90) days after the end of each calendar year (i.e., by March 31 of the following year). The report will contain the following information:
(a) Gross IT revenues collected during the revenue collection period, broken down by month and by IT shipper (to the extent consistent with confidentiality obligations);
(b) Deductions for variable costs directly attributable to IT service, itemized by category;
(c) Deductions for applicable surcharges collected and remitted;
(d) Net IT revenue available for crediting;
(e) Allocation of net IT revenue among firm shippers, showing each shipper's MDQ, its percentage share of total firm MDQ, and its allocated credit amount;
(f) The proposed schedule for applying the credits against future firm transportation invoices.
5. FERC Review. The IT Revenue Crediting Report will be subject to Commission review and approval. The report will be filed as a compliance filing and will be noticed by the Commission for public comment. Any party may file comments or objections within thirty (30) days of the report filing. If no objections are filed and the Commission does not issue an order suspending or rejecting the report within sixty (60) days of filing, the credits will become effective automatically.
6. Credit Application. Credits will be applied as an offset against future firm transportation invoices. Typically, the credits will be applied over the three-month period following FERC acceptance of the report (e.g., for a calendar year 2025 revenue collection period, the report would be filed by March 31, 2026, and credits would be applied to invoices for May, June, and July 2026, assuming FERC acceptance by April 30, 2026). If a firm shipper's contract terminates before the credits are fully applied, the remaining credit balance will be paid to the shipper as a lump-sum refund within sixty (60) days of contract termination.
7. Interaction with Revenue Credits in Cost of Service. The relationship between the ITRC and the revenue credits embedded in the base cost of service requires careful attention to avoid double-counting.
In the original filing, $16.10 million was included as "revenue credit adjustments" in the total cost of service. This amount was not specifically identified as IT revenue credits and may have included other categories of revenue offsets (e.g., non-transportation revenue, miscellaneous service revenue, and similar items). In the revised filing under the tariff redesign, $6.00 million in revenue credits has been included, again without specific identification of IT revenue as a component.
To the extent that the ITRC is implemented as a separate annual true-up mechanism, any imputed IT revenue currently included in the base cost-of-service revenue credits should be removed to avoid double-counting. If estimated IT revenue is included in the cost-of-service revenue credit and actual IT revenues are credited to firm shippers through the ITRC, firm shippers would effectively receive the IT revenue benefit twice — once through the lower FT rate (which reflects the revenue credit) and again through the annual ITRC credit.
We recommend the following approach: Remove any imputed IT revenue from the base cost-of-service revenue credits and rely entirely on the ITRC for IT revenue pass-through. Under this approach, the $6.00 million revenue credit in the revised cost of service would be adjusted to exclude any component attributable to estimated IT revenue. This would modestly increase the FT recourse rate (and, correspondingly, the IT rate) but would provide more accurate and transparent rate signals. Firm shippers would receive the full benefit of actual IT revenues through the annual ITRC, rather than receiving a portion of the benefit through an embedded estimate and the remainder (if any) through a true-up.
As an alternative approach, Ridgeline could retain a conservative estimate of IT revenues as a base revenue credit in the cost of service and use the ITRC only for the difference between actual IT revenues and the estimated amount. Under this hybrid approach, the FT recourse rate would be lower (reflecting the embedded IT revenue estimate), and the annual ITRC credit would be calculated as actual net IT revenue minus the estimated IT revenue already credited through the cost of service. This hybrid approach may be more palatable to intervenors, particularly MGPC, because it produces a lower headline FT rate. However, it introduces complexity and creates a risk that actual IT revenues will fall short of the estimate, resulting in a negative ITRC true-up (i.e., the pipeline would need to recover the shortfall from firm shippers, which would be unpopular).
Our primary recommendation is the first approach (full removal of imputed IT revenue from the cost of service), but we recognize that the hybrid approach may be adopted as a compromise if warranted by settlement dynamics. The choice between these approaches should be discussed with Dr. Orlov and Dr. Braswell as part of the tariff redesign process.
C. Estimated IT Revenue
For purposes of rate-design illustration, we provide the following estimate of potential IT revenues. This estimate is for analytical purposes only and is not a projection or forecast upon which reliance should be placed. Actual IT revenues will depend on market conditions, firm subscription levels, operational factors, and other variables that cannot be predicted with certainty.
Estimated Available IT Capacity. The System has a design capacity of 1,200,000 Dth/d. For rate-design purposes, we assume that initial firm subscriptions will total approximately 900,000 Dth/d, leaving approximately 300,000 Dth/d of capacity potentially available for IT service. This assumption is based on current shipper interest as reported by Ridgeline's commercial team and is subject to change as firm contract negotiations proceed.
Estimated IT Utilization. We apply a conservative assumption of 25% average utilization of available IT capacity. This assumption reflects the fact that IT service is available only on an as-available basis, that IT demand is likely to be seasonal and weather-dependent, and that competitive alternatives (including transportation on ATPC's system and other regional pipeline systems) may limit IT demand on the Ridgeline System. At 25% utilization:
Estimated average daily IT volumes = 300,000 Dth/d × 0.25 = 75,000 Dth/d
Estimated Annual IT Volumes.
75,000 Dth/d × 365 days = 27,375,000 Dth/yr
Estimated Annual IT Revenue (Gross).
27,375,000 Dth × $0.3140/Dth = approximately $8,591,750 (gross, before variable cost deductions)
Estimated Variable Cost Deductions. Variable costs directly attributable to IT service (fuel, electric power, variable O&M) are estimated at approximately 3-5% of gross IT revenue, or approximately $260,000 to $430,000. The precise amount will depend on compression fuel usage rates, which vary with system operating conditions.
Estimated Net IT Revenue Available for Crediting. Net IT revenue available for crediting under the ITRC is estimated at approximately $8.2 to $8.3 million per year, under the assumptions stated above.
We emphasize that this estimate is highly sensitive to the assumed IT utilization rate. The following sensitivity analysis illustrates the range of potential IT revenues:
This sensitivity analysis will be expanded and refined in the workpapers prepared by Dr. Orlov and the Braswell team and attached as Appendix C to the final version of this memorandum.
D. Impact on Firm Shippers
Under the proposed ITRC mechanism, firm shippers will receive annual credits reflecting actual net IT revenues, allocated on a pro rata basis in proportion to each firm shipper's contracted MDQ. The effect of the ITRC is to reduce the effective cost of firm transportation below the recourse rate, providing a tangible financial benefit to firm shippers that aligns with the Commission's cost-allocation principles.
To illustrate: under the base-case estimate above (net IT revenue of approximately $8.3 million per year), and assuming total contracted firm MDQ of 900,000 Dth/d (equivalent to firm billing determinants of 328,500,000 Dth/yr at the 75% load factor used for rate design, or 328,500,000 Dth/yr), the average annual ITRC credit per firm Dth would be approximately:
$8,300,000 ÷ 328,500,000 Dth = approximately $0.0253/Dth
This credit would reduce the effective firm transportation cost from $0.3140/Dth to approximately $0.2887/Dth, a reduction of approximately 8.1%. For a firm shipper with a daily contract quantity of 100,000 Dth/d, the annual ITRC credit would be approximately:
(100,000/900,000) × $8,300,000 = approximately $922,222
The ITRC mechanism directly addresses MGPC's stated position that IT revenues should benefit firm shippers, as the mechanism provides 100% pass-through of net IT revenues to firm shippers. It also addresses ATPC's concern that IT service should not undermine firm service economics. The IT rate is set at the same level as the FT rate on a 100% load factor equivalent basis, ensuring that IT shippers do not receive a rate preference over firm shippers, and IT revenues flow back to firm shippers through the ITRC, ensuring that the provision of IT service enhances, rather than diminishes, the economics of firm capacity.
VI. Comparison to Intervenor Positions
A. MGPC Position (Dr. Eleanor Vasquez Testimony)
The Mountainside Gas Producers Coalition, through its rate expert Dr. Eleanor Vasquez, has advanced two principal positions with respect to the IT rate. First, MGPC advocates that the IT rate be set no higher than the FT rate expressed on a 100% load factor equivalent basis. The proposed IT rate of $0.3140 per Dth is equal to the FT rate on a 100% load factor equivalent basis, which is fully consistent with MGPC's position on this point. Second, MGPC advocates that IT revenues be credited 100% to firm shippers through an explicit crediting mechanism. The proposed ITRC mechanism achieves precisely this outcome, crediting 100% of net IT revenues (after deduction of variable costs directly attributable to IT service and applicable surcharges) to firm shippers on a pro rata basis.
MGPC's broader rate case position advocates an overall rate ceiling of approximately $0.2560 per Dth, based on MGPC's preferred ROE of 11.25% and higher load factor assumptions of 85% or greater. If MGPC's preferred ROE and load factor were adopted, the FT rate — and, consequent