A federal appeals court Tuesday ruled that ExxonMobil's Pegasus crude pipeline does not possess "market power," enabling the company to seek another review of its request to set market-based rates on the pipeline.
The ruling by the US Court of Appeals for the District of Columbia reverses a 2007 decision by the Federal Energy Regulatory Commission.
FERC denied ExxonMobil's request to approve market-based rates on the 96,000 b/d Pegasus line, ruling that the major had 100% market share at the line's origin point of Patoka, Illinois. The line carries primarily Canadian crudes from Patoka to Nederland, Texas.
Tuesday's court ruling stated that the Pegasus line does not possess the 100% of market share that FERC claimed.
The Pegasus line transported only about 3% of the crude produced in Western Canada in 2006 and, therefore, cannot possess market power over producers and shippers of Western Canadian crude, the court ruled.
"The hole in the Commission's analysis is highlighted by the fact that Pegasus is a new entrant into a previously competitive market," the court said.
The court added that the Pegasus line only provides an additional alternative for shipment.
As a result of the reversal of FERC's decision, the court granted ExxonMobil's petition for a review by the agency.
ExxonMobil is pleased with the decision, company spokesman Patrick Henretty said in an email Tuesday.
"FERC had approved the use of market based rates as a tariff-setting methodology for other liquids pipelines and we believed that this FERC precedent supported the use of market-based rates on Pegasus," Henretty said.
