RIDGELINE MIDSTREAM SERVICES LLC
FERC GAS TARIFF
Original Volume No. 1
FOURTH REVISED DRAFT
Near-Final Working Version — November 2024
Docket Nos. RP22-847-000 (Rate Case) and RP22-847-001 (Interconnection)
FERC Code: 960442
Filed by:
Calderwood & Harkness LLP 1601 K Street NW, Suite 900 Washington, DC 20006
On behalf of
Ridgeline Midstream Services LLC 700 Kanawha Boulevard East, Suite 1400 Charleston, WV 25301
Responsible Partner: George Trujillo Lead Associate: Brett Callahan
WORKING DRAFT — PRIVILEGED AND CONFIDENTIAL — NOT FOR FILING
Prepared in coordination with Braswell Energy Consulting Group LLC, Engagement No. BEC-2023-0041.
This Fourth Draft addresses all 14 deficiency items identified in the FERC Office of Energy Market Regulation Deficiency Letter dated January 19, 2023. All revisions from the Third Draft are reflected herein and should be reviewed in conjunction with the Deficiency Item Cross-Reference Table set forth at Appendix D.
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SECTION 1: PRELIMINARY STATEMENT
1.1 Name of Pipeline
This FERC Gas Tariff, Original Volume No. 1 (this "Tariff"), is issued by and on behalf of Ridgeline Midstream Services LLC ("Ridgeline" or "Transporter"), a limited liability company duly organized and existing under the laws of the State of Delaware. Ridgeline's sole member is Dunmore Energy Holdings Ltd. ("DEH"), an exempted limited company organized under the laws of the Cayman Islands (Cayman Registry No. CR-381204). Ridgeline's Employer Identification Number is 87-4231956.
Ridgeline's principal office is located at 700 Kanawha Boulevard East, Suite 1400, Charleston, West Virginia 25301. Ridgeline's registered agent for service of process in the State of Delaware is Capitol Filings Inc., 1209 Orange Street, Wilmington, Delaware 19801. All regulatory and tariff-related communications should be directed to Ridgeline's principal office at the address set forth above, Attention: Director of Rates & Regulatory.
1.2 Description of System
Ridgeline owns and operates the Ridgeline Pipeline System (the "System"), a 187-mile, 24-inch-diameter high-pressure natural gas pipeline extending from a receipt point located at the Wetzel County Interconnect in Wetzel County, West Virginia (approximate coordinates: 39.6120° N, 80.7540° W) to a delivery point located at the Waynesburg Compressor Station in Greene County, Pennsylvania (approximate coordinates: 39.8965° N, 80.1810° W). The System traverses portions of Wetzel County, Marion County, and Monongalia County in West Virginia, and portions of Greene County in Pennsylvania.
The System includes three compressor stations: (a) the Wetzel Station, located at the western terminus of the System near the Wetzel County Interconnect; (b) the Mannington Station, located at approximately Milepost 74.3 in Marion County, West Virginia; and (c) the Waynesburg Station, located at the eastern terminus of the System in Greene County, Pennsylvania. The aggregate installed compression on the System is 45,000 horsepower (HP), distributed among the three compressor stations.
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 BTU content of 1,000 BTU per cubic foot. The System was placed in service on October 1, 2021. The original construction cost of the System was approximately $587.2 million, inclusive of all pipeline facilities, compressor stations, meter stations, rights-of-way, and related infrastructure.
At its western terminus, the System interconnects with the existing pipeline network of Appalachian Trunk Pipeline Company, LLC ("ATPC") at the Wetzel County Interconnect, tying into ATPC's 30-inch mainline at ATPC Milepost 412.6. The interconnection facilities at the Wetzel County Interconnect are further described in Section 10 (Interconnection Agreement) of this Tariff. The System is designed to receive natural gas produced in the Marcellus Shale and Utica Shale formations of the Appalachian Basin and to transport such gas to downstream markets accessible through the Waynesburg Compressor Station and associated pipeline interconnections in Greene County, Pennsylvania.
As of the date of this Fourth Revised Draft, the System's actual throughput is approximately 680 million cubic feet per day (MMcf/d), representing approximately 56.67% utilization of the System's design capacity.
1.3 Jurisdictional Authority
This Tariff is filed pursuant to Section 4 of the Natural Gas Act ("NGA"), 15 U.S.C. § 717c, and the regulations of the Federal Energy Regulatory Commission ("FERC" or the "Commission") promulgated thereunder. Ridgeline and the transportation services provided on the System are subject to the jurisdiction of the Commission under Sections 4, 5, and 7 of the Natural Gas Act, 15 U.S.C. §§ 717c, 717d, and 717f.
The rates, terms, and conditions of service set forth in this Tariff are subject to the applicable regulations of the Commission, including, without limitation, the regulations set forth at 18 C.F.R. Parts 154 (Rate Schedules and Tariffs), 157 (Applications for Certificates of Public Convenience and Necessity), and 284 (Certain Sales and Transportation of Natural Gas Under the Natural Gas Policy Act of 1978 and Related Authorities). Transportation service on the System is offered on an open-access basis in accordance with Part 284, Subpart G of the Commission's regulations.
Nothing in this Tariff shall be construed to limit or waive the Commission's jurisdiction over Ridgeline or the rates, terms, and conditions of service set forth herein. Ridgeline reserves all rights to file under Sections 4 and 5 of the NGA for changes to the rates, terms, and conditions of service set forth in this Tariff, subject to Commission review and approval.
1.4 Effective Date
The proposed effective date of this Tariff shall be determined upon Commission approval following reactivation of the proceedings in Docket Nos. RP22-847-000 (Rate Case) and RP22-847-001 (Interconnection). This Fourth Revised Draft is prepared in response to the Deficiency Letter issued by the Commission's Office of Energy Market Regulation on January 19, 2023, which identified 14 deficiency items requiring resolution prior to further action on the pending tariff filing. Each of the 14 deficiency items has been addressed in this Fourth Revised Draft, as set forth in the Deficiency Item Cross-Reference Table at Appendix D.
Ridgeline anticipates filing this Tariff with the Commission in Docket Nos. RP22-847-000 and RP22-847-001 on or about February 21, 2025, or at such other date as may be determined in consultation with Commission staff. Upon filing, Ridgeline will request an effective date consistent with Commission practice, typically 30 days from the date of filing, subject to Commission action.
1.5 Tariff Applicability
This Tariff, including all rate schedules, general terms and conditions, forms of service agreements, and appendices hereto, shall be applicable to all interstate natural gas transportation service provided by Ridgeline on the System. This Tariff supersedes all prior tariff sheet filings in Docket Nos. RP22-847-000 and RP22-847-001, including the original filing, the First Revised Draft, the Second Revised Draft, and the Third Revised Draft. In the event of any conflict between the provisions of this Tariff and any prior filing in these docket numbers, the provisions of this Tariff shall control.
All service provided by Ridgeline under this Tariff shall be subject to the rates, terms, and conditions set forth herein, as the same may be amended or supplemented from time to time in accordance with the NGA and applicable Commission regulations. No service shall be provided by Ridgeline on terms or conditions that differ from those set forth in this Tariff unless such service is provided pursuant to a negotiated rate agreement or other arrangement that has been filed with and accepted by the Commission.
SECTION 2: RATE SCHEDULES
Rate Schedule FT-1 — Firm Transportation Service
2.1.1 Applicability and Character of Service
Rate Schedule FT-1 sets forth the terms and conditions under which Ridgeline will provide firm transportation service on a primary-path basis from contractually designated receipt point(s) to contractually designated delivery point(s) on the System. Firm transportation service under Rate Schedule FT-1 involves the transportation of natural gas tendered by or for the account of Shipper from the designated receipt point(s) to the designated delivery point(s), up to Shipper's Maximum Daily Quantity ("MDQ"), on a firm basis with guaranteed scheduling priority.
Firm transportation service under Rate Schedule FT-1 is available on a non-discriminatory, open-access basis to any shipper, marketer, producer, local distribution company, end user, or other entity meeting the creditworthiness requirements set forth in Section 11 of the General Terms and Conditions of this Tariff. Service under Rate Schedule FT-1 shall be provided pursuant to a fully executed Form of Service Agreement in the form set forth in Section 16 of this Tariff, or such other form as may be mutually agreed by Transporter and Shipper and filed with the Commission.
Firm transportation service under Rate Schedule FT-1 shall be provided on a primary-path basis, meaning that Shipper's nominations on its primary receipt-to-delivery path shall receive scheduling priority over all secondary firm, capacity release, and interruptible nominations. The character of service under Rate Schedule FT-1 is firm, meaning that Transporter is obligated to accept and schedule Shipper's properly submitted nominations up to Shipper's MDQ, subject only to force majeure events, operational flow orders, and other conditions expressly set forth in this Tariff.
2.1.2 Rates and Charges
The rates and charges applicable to firm transportation service under Rate Schedule FT-1 are as follows:
Maximum Recourse Rate:
The Reservation Charge shall be calculated on a monthly basis by multiplying the applicable reservation rate of $0.3102 per Dth per day by the number of days in the applicable calendar month. The Reservation Charge is payable regardless of whether Shipper utilizes its firm capacity in any given month, subject to the reservation charge crediting provisions set forth in Section 2.1.3 below.
The Usage Charge shall be calculated by multiplying the applicable usage rate of $0.0038 per Dth by the total quantity of gas transported for Shipper's account during the applicable billing month.
Minimum Rate:
The minimum rate for firm transportation service under Rate Schedule FT-1 is $0.00 per Dth for both the reservation and usage components.
Rate Derivation. The maximum recourse rates set forth above are derived from Ridgeline's revised cost of service of $103.15 million and annual billing determinants of 328,500,000 Dth per year. The 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 75% load factor, yielding annual billing determinants of 328,500,000 Dth. The derivation of the cost of service and the allocation of costs between the reservation and usage components of the rate are set forth in detail in Section 3 (Cost-of-Service Summary) and Appendix C (Cost-of-Service Summary Schedules) of this Tariff.
Negotiated Rate Authority. Transporter may offer firm transportation service at negotiated rates that differ from the maximum recourse rate set forth above, subject to Commission policy on negotiated rates as 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), and subsequent Commission orders and policy statements. Any shipper that declines to enter into a negotiated rate agreement shall be entitled to receive firm transportation service at the maximum recourse rate set forth in this Rate Schedule FT-1. The recourse rate shall remain available as an alternative to any shipper at all times during the term of this Tariff, regardless of whether Transporter has entered into negotiated rate agreements with other shippers.
FL&U Retention Percentage. In addition to the rates and charges set forth above, Shipper shall be subject to the Fuel Use and Lost-and-Unaccounted-for Gas ("FL&U") retention percentage as set forth in Section 5 of this Tariff. The FL&U retention percentage shall be applied to volumes tendered by Shipper at the receipt point(s), and the retained volumes shall be used by Transporter to operate the System's compressor stations and to account for system losses. Shipper may elect to satisfy its FL&U obligation through in-kind retention of gas or through cash payment at Transporter's posted index price, as set forth in Section 5.3.
ACA Surcharge. Shipper shall be subject to the Annual Charge Adjustment ("ACA") surcharge as separately authorized and approved by the Commission from time to time. The ACA surcharge recovers Transporter's pro rata share of the Commission's annual charges assessed pursuant to Section 3401 of the Omnibus Budget Reconciliation Act of 1986, as amended.
2.1.3 Reservation Charge Crediting Mechanism
Transporter-Caused Non-Performance. In the event that Transporter fails to schedule and transport Shipper's properly submitted firm nominations due to causes attributable to Transporter (excluding force majeure events and periods during which an operational flow order is in effect), Shipper shall receive a full credit against its Reservation Charge obligation for each day on which such non-performance occurs. The credit shall be calculated by multiplying the daily Reservation Charge rate by the quantity (in Dth) of Shipper's firm nomination that Transporter failed to schedule and transport on such day.
Force Majeure Events. In the event that Transporter's failure to schedule and transport Shipper's properly submitted firm nominations is caused by a force majeure event (as defined in Section 4.9 of the General Terms and Conditions), Shipper shall receive a partial credit against its Reservation Charge obligation. The partial credit shall be equal to 75% of the full credit that would otherwise be applicable under the Transporter-caused non-performance provisions above, provided that such partial credit shall apply only with respect to force majeure events that continue for a period in excess of 72 consecutive hours. No credit shall be provided for force majeure events of 72 hours or less duration.
Scheduling Priority Credits. In the event that Shipper's firm nomination on its primary path is curtailed or reduced in order to accommodate the scheduling of another shipper's nomination that should have received lower scheduling priority under the scheduling priority provisions set forth in Section 4.4.2, Shipper shall receive a full credit against its Reservation Charge obligation for each day on which such improper scheduling occurred. Transporter shall investigate any claim of improper scheduling priority and shall provide Shipper with a written determination within 15 business days of receipt of Shipper's claim.
2.1.4 Term of Service
The minimum term for firm transportation service under Rate Schedule FT-1 shall be one (1) year. The maximum initial term of service shall be subject to negotiation between Transporter and Shipper, provided that the initial term shall not exceed twenty-five (25) years without prior Commission approval or waiver. Extensions of the initial term may be agreed upon by the parties and shall be reflected in amendments to the applicable Service Agreement.
Right of First Refusal. At the expiration of the initial term or any extension thereof, Shipper shall have a right of first refusal ("ROFR") to continue receiving firm transportation service on the same path and at the same MDQ, subject to the following conditions:
(a) Shipper must provide written notice to Transporter of its desire to exercise its ROFR no later than 180 days prior to the expiration of the then-current term;
(b) If Transporter has received a bona fide competing offer from a third party for the same or overlapping capacity, Transporter shall notify Shipper of the material terms of such competing offer (without disclosing the identity of the competing offeror), and Shipper shall have 30 days from receipt of such notice to match or exceed the terms of the competing offer;
(c) Shipper's exercise of its ROFR shall be on terms no less favorable to Transporter than the terms of any bona fide competing offer, taking into account the rate, term, volume, and other material terms of such offer;
(d) If Shipper fails to exercise its ROFR within the time periods specified above, or if Shipper is unable or unwilling to match the terms of a competing offer, Transporter may contract with the competing offeror for the capacity in question;
(e) The ROFR provisions set forth herein are subject to and shall be administered in accordance with the Commission's policies regarding ROFR, including, without limitation, the Commission's orders in Panhandle Eastern Pipe Line Co., 67 FERC ¶ 61,001 (1994), and subsequent policy pronouncements.
2.1.5 Capacity Release
Firm shippers holding capacity under Rate Schedule FT-1 may release all or a portion of their firm capacity rights to a Replacement Shipper under the capacity release provisions set forth in Section 7 of the General Terms and Conditions of this Tariff. All capacity releases shall be conducted in accordance with the Commission's regulations at 18 C.F.R. § 284.8 and the applicable provisions of this Tariff. The capacity release provisions of this Tariff have been revised in this Fourth Revised Draft to address Deficiency Item 5 identified in the Commission's Deficiency Letter of January 19, 2023.
2.1.6 Billing and Payment
Billing for firm transportation service under Rate Schedule FT-1 shall be on a monthly billing cycle. Transporter shall render an invoice to Shipper no later than the 10th business day following the end of each production month. Payment of invoiced amounts shall be due within 25 days of the date of the invoice. Late payments shall bear interest at the prime rate of interest as published in The Wall Street Journal on the first business day of the month in which payment is due, plus two percent (2%) per annum, calculated on a daily basis from the date payment was due until the date payment is received by Transporter. Detailed billing and payment provisions are set forth in Section 4.8 of the General Terms and Conditions.
Rate Schedule IT-1 — Interruptible Transportation Service
2.2.1 Applicability and Character of Service
Rate Schedule IT-1 sets forth the terms and conditions under which Ridgeline will provide interruptible transportation service on the System. Interruptible transportation service is available on the System to the extent that capacity is not subscribed under Rate Schedule FT-1 or otherwise committed to firm service. Interruptible service is provided on an as-available, best-efforts basis, without any guarantee of capacity or scheduling priority.
Interruptible transportation service is subordinate to all firm transportation service on the System, including primary firm service, secondary firm service, and service provided to Replacement Shippers under capacity release transactions. Nominations for interruptible service shall be scheduled only after all firm nominations have been scheduled for the applicable gas day. Service under Rate Schedule IT-1 shall be provided pursuant to a fully executed Form of Service Agreement in the form set forth in Section 17 of this Tariff.
2.2.2 Rates and Charges
The rates and charges applicable to interruptible transportation service under Rate Schedule IT-1 are as follows:
Maximum Interruptible Rate:
The maximum interruptible rate of $0.3140 per Dth is equal to the 100% load factor equivalent of the maximum recourse firm transportation rate under Rate Schedule FT-1, consisting of the sum of the daily Reservation Charge of $0.3102 per Dth and the Usage Charge of $0.0038 per Dth. This rate derivation methodology is consistent with the Commission's policy on the derivation of interruptible transportation rates, as set forth in Vireo Industries., 55 FERC ¶ 61,446 (1991), and subsequent Commission orders. The IT rate derivation methodology has been revised in this Fourth Revised Draft to address Deficiency Item 3 identified in the Commission's Deficiency Letter of January 19, 2023.
Minimum Rate:
The minimum rate for interruptible transportation service under Rate Schedule IT-1 is $0.00 per Dth.
FL&U Retention Percentage. Shipper receiving interruptible service shall be subject to the same FL&U retention percentage applicable to firm shippers under Rate Schedule FT-1, as set forth in Section 5 of this Tariff.
IT Revenue Crediting. Net interruptible transportation revenues (interruptible revenues less variable costs attributable to interruptible service) shall be credited to firm shippers through the IT Revenue Crediting Mechanism set forth in Section 14 of the General Terms and Conditions of this Tariff.
2.2.3 Term of Service
Interruptible transportation service under Rate Schedule IT-1 is provided on a day-to-day basis with no minimum term of service. Service is available for individual gas days or for such longer period as may be agreed upon by Transporter and Shipper, subject to the interruptible nature of the service. There are no right of first refusal rights associated with interruptible service under Rate Schedule IT-1.
2.2.4 Scheduling and Curtailment Priority
Nominations for interruptible transportation service under Rate Schedule IT-1 are subject to curtailment before any firm transportation service provided under Rate Schedule FT-1. In the event that available interruptible capacity is insufficient to accommodate all properly submitted interruptible nominations for a given gas day, Transporter shall allocate available interruptible capacity among interruptible shippers on a pro rata basis, based on the ratio of each interruptible shipper's confirmed nomination to the aggregate of all confirmed interruptible nominations for such gas day.
Transporter shall have no liability to any interruptible shipper for any failure to schedule, or any curtailment of, interruptible service, regardless of the reason for such failure or curtailment. Interruptible shippers acknowledge and agree that the interruptible nature of service under Rate Schedule IT-1 means that service may be curtailed or interrupted at any time without notice, and that Transporter shall have no obligation to provide interruptible service on any given gas day.
Rate Schedule PAL-1 — Parking and Lending Service
2.3.1 Overview. Rate Schedule PAL-1 sets forth the terms and conditions under which Ridgeline may provide short-term park-and-loan service on the System, utilizing available system storage capacity and linepack flexibility. Parking service involves the receipt and temporary storage of gas on the System for subsequent redelivery to Shipper at a later date. Lending service involves the delivery of gas to Shipper from System linepack for subsequent repayment by Shipper at a later date.
Applicability. Park-and-loan service under Rate Schedule PAL-1 is available on a discretionary, interruptible basis, subject to system operating conditions and the availability of linepack capacity not required for the provision of firm and interruptible transportation service. Transporter shall have no obligation to provide park-and-loan service under this Rate Schedule, and the availability of such service shall be determined by Transporter in its sole operational discretion.
Rates and Charges. The maximum rate for park-and-loan service under Rate Schedule PAL-1 shall be $0.0150 per Dth per day for parking service and $0.0150 per Dth per day for lending service. The minimum rate for each component of park-and-loan service shall be $0.00 per Dth per day. Transporter may offer park-and-loan service at negotiated rates, subject to Commission policy.
Term. Park-and-loan service under Rate Schedule PAL-1 shall be provided for terms not to exceed 60 consecutive days per transaction, unless otherwise agreed by Transporter and Shipper. Extensions may be granted on a case-by-case basis subject to system conditions.
Scheduling Priority. Park-and-loan service shall be subordinate in scheduling priority to all firm and interruptible transportation service on the System.
SECTION 3: COST-OF-SERVICE SUMMARY
This Section 3 sets forth a summary of Ridgeline's revised cost of service supporting the rates proposed in this Tariff. The cost of service has been revised from the original filing to address the deficiency items identified by the Commission's Office of Energy Market Regulation, and to reflect updated data, analyses, and assumptions. Detailed cost-of-service schedules are set forth in Appendix C.
3.1 Rate Base
Ridgeline's rate base as of the test year ended March 31, 2022, is summarized as follows:
Net Plant in Service. Gross plant in service of $587.20 million represents the original construction cost of the Ridgeline Pipeline System, inclusive of all pipeline facilities, compressor stations, meter stations, rights-of-way, land, and related infrastructure. Accumulated depreciation of $23.49 million reflects depreciation accrued from the System's in-service date of October 1, 2021 through the end of the test year on March 31, 2022, calculated on a straight-line basis at an annual depreciation rate of 2.5%.
Working Capital Allowance. The working capital allowance of $18.64 million is calculated using the Commission's standard formula of one-eighth (1/8) of annual operation and maintenance ("O&M") expenses and administrative and general ("A&G") expenses. Specifically, the working capital allowance is calculated as: ($13.92 million O&M + $5.14 million A&G) × 1/8 × 12/12 = $2.3825 million per month × approximately 7.82 months = $18.64 million. This calculation follows the Commission's established methodology for determining working capital allowances in natural gas pipeline rate cases.
Accumulated Deferred Income Taxes. Accumulated deferred income taxes of ($12.45 million) represent the balance of timing differences between book and tax depreciation as of the end of the test year. ADIT is treated as a reduction to rate base, consistent with the Commission's regulations and longstanding ratemaking practice, reflecting the fact that ratepayers have effectively provided capital to the pipeline through the payment of income taxes in excess of the pipeline's current tax liability.
Other Rate Base Items. Other rate base items of $42.50 million include the value of gas stored in the pipeline system (linepack), prepaid expenses, and the cost of materials and supplies maintained on hand for pipeline operations and maintenance. These items represent actual investments by Ridgeline that are necessary for the provision of service and are appropriately included in rate base.
3.2 Capital Structure and Return
Ridgeline's capital structure and the derivation of its weighted average cost of capital are set forth below:
Equity. Ridgeline's capital structure consists of 55% equity, consistent with the Commission's policy of using actual capital structures for natural gas pipelines to the extent such structures are within a reasonable range and do not reflect an unreasonable proportion of equity. The proposed return on equity ("ROE") of 12.50% has been revised downward from the originally proposed ROE of 14.00% in response to Deficiency Item 1 from the Commission's Deficiency Letter of January 19, 2023, which required updated support for the proposed ROE.
The revised ROE of 12.50% is based on an updated discounted cash flow ("DCF") proxy group analysis performed by Braswell Energy Consulting Group LLC as of the third quarter of 2024. The proxy group consists of seven publicly traded natural gas pipeline companies with operations comparable to Ridgeline's, including companies with significant exposure to Appalachian Basin gathering and transportation. The median DCF result from the proxy group analysis yields an ROE range of 11.75% to 13.25%, with a midpoint of 12.50%. The updated proxy group analysis reflects current market conditions, including the post-2021 interest rate environment, and is consistent with the Commission's DCF methodology as set forth in Composition of Proxy Groups for Determining Gas and Oil Pipeline Return on Equity, 123 FERC ¶ 61,048 (2008), and subsequent orders.
Debt. The cost of debt of 5.25% represents the weighted average cost of Ridgeline's outstanding long-term debt obligations, consisting of:
(a) A $400 million senior secured term loan arranged by Pinnacle National Bank as lead arranger and administrative agent, bearing interest at a floating rate of the Secured Overnight Financing Rate ("SOFR") plus 325 basis points (bps). As of the date of this Fourth Revised Draft, the effective interest rate on the term loan is approximately 4.50% per annum, based on current SOFR levels.
(b) $150 million in aggregate principal amount of 7.875% Second Lien Senior Secured Notes, held by Harborview Capital Management LLC and Sentinel Ridge Fund LP. The Second Lien Notes bear interest at a fixed rate of 7.875% per annum and mature on March 15, 2029.
The weighted average cost of debt is calculated as follows: [(($400M × 4.50%) + ($150M × 7.875%)) ÷ $550M] = [($18.0M + $11.8125M) ÷ $550M] = $29.8125M ÷ $550M = 5.42%. The cost of debt used for ratemaking purposes (5.25%) reflects a modest downward adjustment to account for anticipated SOFR rate movements over the near term. Ridgeline reserves the right to update the cost of debt in the final filing to reflect then-current market conditions.
Return on Rate Base. The return on rate base is calculated by multiplying the total rate base by the weighted average cost of capital:
$612.40 million × 9.2375% = $56.57 million
3.3 Operating Expenses
Ridgeline's operating expenses for the test year are summarized as follows:
Depreciation Expense. Depreciation expense of $14.68 million is calculated on a straight-line basis at an annual depreciation rate of 2.5%, applied to the gross plant in service of $587.20 million. The 2.5% depreciation rate implies an assumed useful life of 40 years for the System's pipeline and compressor station facilities, which is consistent with industry practice for natural gas transmission pipelines and the Commission's depreciation policies.
Operation and Maintenance Expense. O&M expense has been revised upward from the originally filed amount of $12.44 million to $13.92 million, an increase of $1.48 million (11.9%). The revision reflects updated estimates for compressor station operating costs, pipeline integrity and in-line inspection costs, and environmental compliance costs. The increased O&M expense reflects the actual operating experience of the System since its in-service date, which demonstrated higher-than-anticipated costs for compressor station maintenance and pipeline integrity management.
Administrative and General Expense. A&G expense has been revised upward from the originally filed amount of $4.82 million to $5.14 million, an increase of $0.32 million (6.6%). The revision reflects updated estimates for insurance premiums, legal and regulatory costs, and general corporate overhead allocations from DEH.
Taxes Other Than Income Taxes. Taxes other than income taxes of $3.80 million include ad valorem property taxes assessed by the applicable taxing jurisdictions in West Virginia and Pennsylvania, as well as state franchise taxes and other miscellaneous tax obligations.
3.4 Income Tax Allowance
Ridgeline's income tax allowance is calculated as follows:
The revised income tax allowance is $15.04 million, adjusted downward from the originally filed amount of $16.10 million. The reduction in the income tax allowance reflects the lower ROE of 12.50% (compared to the originally proposed 14.00%), which reduces the taxable income component of the cost of service and, consequently, the income tax obligation.
Partnership vs. Corporate Form Considerations. Ridgeline is organized as a limited liability company with a single member (DEH). The eligibility of Ridgeline for an income tax allowance has been analyzed in accordance with the Commission's policy as set forth in Sterling Reach Holdings, Inc. v. FERC, 827 F.3d 122 (D.C. Cir. 2016), SFPP, L.P., 134 FERC ¶ 61,121 (2011), and subsequent Commission orders addressing the income tax allowance for pass-through entities. Based on this analysis, and consistent with the Commission's Revised Policy Statement on Treatment of Income Taxes, 162 FERC ¶ 61,227 (2018), Ridgeline has demonstrated that an income tax allowance is appropriate because the ultimate owners of Ridgeline bear an actual or anticipated income tax liability with respect to the income earned by Ridgeline from the provision of jurisdictional service.
3.5 Revenue Credits
Ridgeline's revised revenue credits total ($6.00 million), reduced from the originally filed amount of ($16.10 million). Revenue credits represent offsets to the cost of service and consist of the following components:
(a) Interruptible transportation revenue credits: ($3.50 million), representing the estimated net IT revenues to be credited to firm shippers through the IT Revenue Crediting Mechanism set forth in Section 14;
(b) Penalty revenue credits: ($1.20 million), representing the estimated net penalty revenues to be credited to non-offending shippers through the Penalty Revenue Crediting Mechanism set forth in Section 9;
(c) Other miscellaneous revenue credits: ($1.30 million), representing revenues from park-and-loan service, excess interconnection capacity sales, and other incidental sources.
The reduction in revenue credits from ($16.10 million) to ($6.00 million) reflects a more conservative estimate of IT revenues based on actual System utilization data since the in-service date, as well as a revised methodology for estimating penalty revenues that is more consistent with actual operating experience.
3.6 Total Cost of Service
Ridgeline's revised total cost of service is summarized as follows:
The revised total cost of service of $103.15 million represents an increase from the originally filed total cost of service of $97.36 million, an increase of $5.79 million (5.9%). The increase is attributable to the following factors: (a) increased O&M and A&G expenses ($1.80 million net increase); (b) reduced revenue credits ($10.10 million reduction in offsets); partially offset by (c) reduced return on rate base ($5.06 million reduction due to lower ROE) and (d) reduced income tax allowance ($1.06 million reduction). The net effect of these changes results in a higher total cost of service and, consequently, higher recourse rates than those originally proposed.
3.7 Billing Determinants and Rate Derivation
The billing determinants and rate derivation supporting the maximum recourse rates set forth in Rate Schedule FT-1 are as follows:
Load Factor. The load factor assumption has been revised from the originally filed assumption of 100% to 75% in response to Deficiency Item 4 from the Commission's Deficiency Letter of January 19, 2023, which identified insufficient support for the originally proposed 100% load factor assumption. The revised 75% load factor is supported by the following considerations:
(a) The System's actual throughput since the in-service date has averaged approximately 680 MMcf/d, representing approximately 56.67% utilization of the System's 1,200 MMcf/d design capacity;
(b) Ridgeline's current contracted firm capacity under executed precedent agreements and binding open season commitments represents approximately 70% of the System's design capacity;
(c) Ridgeline projects that firm contracted capacity will increase to approximately 75% of design capacity within two years of the proposed effective date of this Tariff, based on ongoing commercial negotiations with potential shippers and the continued development of Marcellus and Utica Shale production in the System's market area;
(d) The 75% load factor assumption is within the range of load factors accepted by the Commission in recent rate cases involving similarly situated natural gas transmission pipelines in the Appalachian Basin.
Rate Design Methodology. Ridgeline utilizes a modified fixed-variable ("MFV") rate design methodology for the allocation of costs between the reservation and usage components of the firm transportation rate. Under the MFV methodology, all fixed costs (including return on rate base, depreciation, and fixed O&M) are allocated to the reservation charge, while variable costs (principally compressor fuel and variable O&M) are allocated to the usage charge. The allocation results in a reservation charge of $0.3102 per Dth per day and a usage charge of $0.0038 per Dth, for a total maximum rate of $0.3140 per Dth at 100% daily utilization of MDQ.
Current Actual Throughput. As noted above, the System's current actual throughput is approximately 680 MMcf/d, representing approximately 56.67% utilization of design capacity. Ridgeline notes that actual throughput is expected to increase as additional shippers execute firm transportation agreements and as production in the System's market area continues to develop. The 75% load factor assumption used for rate derivation purposes reflects Ridgeline's expectation of achievable contracted capacity over the near to medium term, rather than current actual throughput levels.
SECTION 4: GENERAL TERMS AND CONDITIONS
4.1 Definitions
As used in this Tariff, the following terms shall have the meanings set forth below. Terms defined in this Section 4.1 shall have the same meaning throughout this Tariff, including all rate schedules, general terms and conditions, forms of service agreements, and appendices, unless otherwise specified. Definitions have been harmonized with the North American Energy Standards Board Wholesale Gas Quadrant ("NAESB WGQ") Version 3.2 standards to the extent applicable.
"ACA Surcharge" means the Annual Charge Adjustment surcharge assessed by Transporter on Shippers to recover Transporter's pro rata share of the Commission's annual charges.
"ADIT" means Accumulated Deferred Income Taxes.
"Appalachian Trunk Pipeline Company" or "ATPC" means Appalachian Trunk Pipeline Company, LLC, the owner and operator of the pipeline system that interconnects with the Ridgeline Pipeline System at the Wetzel County Interconnect.
"Business Day" means any day other than Saturday, Sunday, or a day on which banks in the State of West Virginia or the District of Columbia are authorized or required by law to close. For purposes of this Tariff, Business Day shall have the meaning assigned to such term in the NAESB WGQ Version 3.2 standards.
"Capacity Release" means the release by a Releasing Shipper of all or a portion of its firm capacity rights under Rate Schedule FT-1 to a Replacement Shipper, in accordance with Section 7 of this Tariff and the Commission's regulations at 18 C.F.R. § 284.8.
"Commission" or "FERC" means the Federal Energy Regulatory Commission, or any successor agency.
"Confirmation" means the process by which Transporter, an upstream operator, and/or a downstream operator confirm the quantities of gas nominated by Shipper for a particular gas day.
"Dekatherm" or "Dth" means a unit of energy equal to 1,000,000 British Thermal Units (BTU), as measured at 14.73 pounds per square inch absolute and 60 degrees Fahrenheit.
"Delivery Point" means the point or points on the Ridgeline Pipeline System at which Transporter delivers gas to or for the account of Shipper, as specified in Shipper's Service Agreement.
"Dunmore Energy Holdings" or "DEH" means Dunmore Energy Holdings Ltd., an exempted limited company organized under the laws of the Cayman Islands, and the sole member of Ridgeline.
"EBB" means Transporter's Electronic Bulletin Board, as described in Section 6 of this Tariff.
"FL&U" means Fuel Use and Lost-and-Unaccounted-for Gas, as described in Section 5 of this Tariff.
"Force Majeure" means an event or circumstance beyond the reasonable control of the affected party, as defined in Section 4.9 of this Tariff.
"Gas Day" means a period of 24 consecutive hours beginning at 9:00 a.m. Central Clock Time, consistent with the NAESB WGQ Version 3.2 definition.
"Interruptible Service" or "IT Service" means transportation service provided under Rate Schedule IT-1, subject to interruption or curtailment as described therein.
"Maximum Daily Quantity" or "MDQ" means the maximum quantity of gas, in Dth, that Shipper is entitled to transport on the Ridgeline Pipeline System during any Gas Day, as specified in Shipper's Service Agreement under Rate Schedule FT-1.
"MMBtu" means one million British Thermal Units, which for purposes of this Tariff is equivalent to one Dth.
"MMcf" means one million cubic feet.
"NAESB" means the North American Energy Standards Board.
"NGA" means the Natural Gas Act, 15 U.S.C. § 717 et seq.
"Nomination" means a request submitted by Shipper to Transporter for the transportation of a specified quantity of gas on a specified Gas Day, from a specified Receipt Point to a specified Delivery Point.
"Operational Flow Order" or "OFO" means a directive issued by Transporter requiring Shipper to take specified actions to maintain the operational integrity of the Ridgeline Pipeline System, as described in Section 4.4.3 of this Tariff.
"Receipt Point" means the point or points on the Ridgeline Pipeline System at which Transporter receives gas from or for the account of Shipper, as specified in Shipper's Service Agreement.
"Releasing Shipper" means a firm shipper under Rate Schedule FT-1 that releases all or a portion of its firm capacity rights to a Replacement Shipper under the capacity release provisions of Section 7.
"Replacement Shipper" means a shipper that acquires firm capacity rights from a Releasing Shipper under the capacity release provisions of Section 7.
"Ridgeline Pipeline System" or "System" means the natural gas pipeline system owned and operated by Ridgeline, as described in Section 1.2 of this Tariff.
"Scheduling Day" means the Business Day immediately preceding a Gas Day, on which Nominations are submitted and confirmed for such Gas Day, consistent with the NAESB WGQ Version 3.2 definition.
"Shipper" means any person or entity that has entered into a Service Agreement with Transporter for the transportation of natural gas on the Ridgeline Pipeline System under any Rate Schedule of this Tariff.
"SOFR" means the Secured Overnight Financing Rate, as published by the Federal Reserve Bank of New York.
"Transporter" means Ridgeline Midstream Services LLC.
"WGQ" means Wholesale Gas Quadrant of the North American Energy Standards Board.
4.2 Transportation Service Requests and Contracting
Requesting Service. Any prospective shipper desiring firm or interruptible transportation service on the Ridgeline Pipeline System may submit a request for service to Transporter in writing, by electronic mail, or through Transporter's EBB. Service requests shall include the following information: (a) the type of service requested (firm or interruptible); (b) the desired receipt and delivery points; (c) the desired MDQ (for firm service); (d) the desired commencement date and term of service; (e) the identity and contact information of the requesting shipper; and (f) such other information as Transporter may reasonably require to evaluate the request.
Processing of Requests. Transporter shall acknowledge receipt of each service request within two (2) Business Days and shall use commercially reasonable efforts to respond substantively within ten (10) Business Days. Transporter shall process all service requests on a non-discriminatory, first-come, first-served basis, subject to available capacity. In the event that available capacity is insufficient to satisfy all pending firm service requests, Transporter shall utilize an open season process to allocate capacity on a non-discriminatory basis.
Form of Service Agreement. All firm transportation service under Rate Schedule FT-1 shall be provided pursuant to a fully executed Service Agreement substantially in the form set forth in Section 16 of this Tariff. All interruptible transportation service under Rate Schedule IT-1 shall be provided pursuant to a fully executed Service Agreement substantially in the form set forth in Section 17 of this Tariff. Transporter and Shipper may agree to modifications to the form of Service Agreement, provided that any material deviations from the pro forma form shall be filed with and accepted by the Commission.
Minimum and Maximum Contract Terms. The minimum term for firm service under Rate Schedule FT-1 is one (1) year. The maximum initial term is twenty-five (25) years, subject to negotiation. There is no minimum or maximum term for interruptible service under Rate Schedule IT-1, which is provided on a day-to-day basis.
Rollover and Evergreen Provisions. Unless otherwise specified in the applicable Service Agreement, firm service agreements shall automatically renew for successive one-year periods at the expiration of the initial term and any extension thereof, on the same terms and conditions (including the applicable rate), unless either party provides written notice of termination no later than 180 days prior to the end of the then-current term. The automatic renewal provisions are subject to the ROFR provisions set forth in Section 2.1.4 in the event that a competing offer for the same capacity has been received.
4.3 Quality Specifications
General. All natural gas tendered by Shipper for transportation on the Ridgeline Pipeline System must meet the quality specifications set forth in this Section 4.3 at the applicable Receipt Point(s). Transporter reserves the right to reject any gas that does not conform to these specifications, and Shipper shall be responsible for all costs and damages resulting from the tender of non-conforming gas.
BTU Content and Heating Value. Gas tendered for transportation shall have a gross heating value of not less than 967 BTU per cubic foot and not more than 1,110 BTU per cubic foot, measured on a dry basis at 14.73 psia and 60°F.
Hydrocarbon Dewpoint. The hydrocarbon dewpoint of gas tendered for transportation shall not exceed 15°F at a pressure of 400 psig at any point within the operating pressure range of the System.
Moisture Content. Gas tendered for transportation shall contain not more than 7.0 pounds of water vapor per million cubic feet (MMcf), measured at 14.73 psia and 60°F.
Contaminant Specifications. Gas tendered for transportation shall meet the following contaminant specifications:
Gas tendered for transportation shall be free of dust, sand, gums, oils, and other impurities that may interfere with the merchantability of the gas or cause damage to Transporter's pipeline facilities. Gas shall be commercially free of objectionable odors (other than odorant added for safety purposes).
Right to Reject. If gas tendered by Shipper at any Receipt Point fails to meet the quality specifications set forth in this Section 4.3, Transporter may, in its sole discretion: (a) reject such gas and refuse to accept it for transportation; (b) accept such gas subject to a treatment charge to cover the costs of bringing the gas into compliance with the specifications; or (c) accept such gas and waive the applicable specification(s), provided that such waiver shall not be deemed a permanent waiver or a modification of the quality specifications. Transporter shall provide Shipper with prompt written notice of any rejection of gas under this provision.
4.4 Nominations and Scheduling
4.4.1 Nomination Procedures
Nominations for transportation service on the Ridgeline Pipeline System shall be submitted by Shipper to Transporter in accordance with the NAESB WGQ Version 3.2 nomination and scheduling procedures. The following nomination cycles shall be available:
(a) Timely Nomination Cycle. Nominations submitted during the Timely Nomination Cycle must be received by Transporter no later than 1:00 p.m. Central Clock Time ("CCT") on the Scheduling Day immediately preceding the applicable Gas Day. Transporter shall provide scheduling results for Timely Nominations by 5:00 p.m. CCT on the Scheduling Day.
(b) Evening Nomination Cycle. Nominations submitted during the Evening Nomination Cycle must be received by Transporter no later than 6:00 p.m. CCT on the Scheduling Day immediately preceding the applicable Gas Day. Transporter shall provide scheduling results for Evening Nominations by 10:00 p.m. CCT on the Scheduling Day.
(c) Intraday 1 Nomination Cycle. Nominations submitted during the Intraday 1 Nomination Cycle must be received by Transporter no later than 10:00 a.m. CCT on the applicable Gas Day. Transporter shall provide scheduling results for Intraday 1 Nominations by 2:00 p.m. CCT on the Gas Day.
(d) Intraday 2 Nomination Cycle. Nominations submitted during the Intraday 2 Nomination Cycle must be received by Transporter no later than 2:30 p.m. CCT on the applicable Gas Day. Transporter shall provide scheduling results for Intraday 2 Nominations by 6:00 p.m. CCT on the Gas Day.
(e) Intraday 3 Nomination Cycle. Nominations submitted during the Intraday 3 Nomination Cycle must be received by Transporter no later than 7:00 p.m. CCT on the applicable Gas Day. Transporter shall provide scheduling results for Intraday 3 Nominations by 9:00 p.m. CCT on the Gas Day.
All nominations shall be submitted electronically via Transporter's interactive internet-based Electronic Bulletin Board ("EBB"), as described in Section 6 of this Tariff. Nominations must include the following information: (a) Shipper identification; (b) service agreement number; (c) nomination quantity (in Dth); (d) Receipt Point(s) and Delivery Point(s); (e) upstream and downstream interconnecting parties; and (f) such other information as required by the NAESB WGQ Version 3.2 standards.
The nomination procedures set forth in this Section 4.4.1 have been revised in this Fourth Revised Draft to ensure full compliance with the NAESB WGQ Version 3.2 standards, in response to Deficiency Item 6 identified in the Commission's Deficiency Letter of January 19, 2023.
4.4.2 Confirmation and Scheduling
Confirmation. Upon receipt of a nomination, Transporter shall coordinate with the applicable upstream and downstream operators to confirm the nominated quantities. Confirmation shall be conducted in accordance with the NAESB WGQ Version 3.2 confirmation procedures. Confirmed quantities may be less than nominated quantities if the upstream or downstream operator is unable to confirm the full nominated volume, or if system constraints limit the available capacity.
Scheduling Priority. In the event that total confirmed nominations exceed available capacity on any segment of the System, Transporter shall schedule nominations in accordance with the following priority order:
(1) Primary firm nominations under Rate Schedule FT-1 (nominations on Shipper's primary receipt-to-delivery path);