The Federal Energy Regulatory Commission has been ordered by the U.S. Court of Appeals to reconsider its refusal to allow ExxonMobil to charge a market-based tariff on its Pegasus pipeline from Illinois to the Texas Gulf Coast.
A three-judge panel said it was “unreasonable” of FERC to reject ExxonMobil’s application because Pegasus does not have the ability to control the transportation of crude from Canada.
The judges said the “record shows that producers and shippers of Western Canadian crude oil have numerous alternatives to Pegasus for transporting and selling their crude oil.”
Until FERC decides whether to appeal the judgment will not become law.
The ruling coincides with an application to FERC by Enterprise Products Partners, co-owner with Enbridge of the Seaway crude oil pipeline from Cushing, Okla., to the Gulf Coast, to also be allowed to charge market rates.
The 858-mile Pegasus line carries about 60,000 barrels per day of oil, or 3 percent of the 2.2 million bpd Western Canada produces, the court was told.
Oil producers had challenged ExxonMobil’s request, arguing it would give the operator too much control over transportation prices.
FERC concluded that approval of the application would give ExxonMobil the chance to manipulate rates above competitive levels for a significant period of time because of a lack of competition.
Circuit Judge Brett Kavanagh wrote for the panel that FERC “jumped the rails by treating the Pegasus pipeline as the rough equivalent of a bottleneck or essential facility for transportation of Western Canadian crude. The record thoroughly undermines FERC’s conclusion.”
Since the Pegasus application was filed five years ago, TransCanada has launched its controversial Keystone XL plan to deliver 830,000 bpd to Gulf Coast refineries, while Enbridge plans to carry 850,000 bpd to Texas using its Canadian mainline and Seaway. Both projects are designed to deliver oil sands crude from Alberta and crude from the Bakken region.
TransCanada is not prepared to speculate what form its rates application might take.
—Gary Park
