WASHINGTON, April 17 (Reuters) - A U.S. appeals court on Tuesday reversed a decision by the Federal Energy Regulatory Commission that had ruled a crude oil pipeline in the central United States owned by Exxon Mobil Corp had market power, and thus the rates it charged had to be capped.
The U.S. Court of Appeals for the District of Columbia Circuit said that the record showed that producers and shippers of Western Canadian oil had "numerous competitive alternatives" to the Pegasus pipeline for moving the oil.
For a pipeline operator to charge market-based rates, it must first seek approval from FERC. The Pegasus pipeline, which runs about 858 miles from Illinois to Texas, moves about 66,000 barrels of crude oil a day, 3 percent of the Western Canadian crude oil produced daily, according to the court opinion.
The ExxonMobil unit, Mobil Pipe Line Co, applied to FERC for relief to charge market-based rates and the agency's staff backed the application after determining that the origin and destination markets were competitive.
The commission disagreed and rejected the application.
The three-judge appeals court panel said that the commission was wrong to deny the application based on the evidence before it and that if Pegasus raised its rates, the producers and shippers could easily find an alternative to getting the oil to refineries.
"There is thus no plausible way, as we see it and as FERC's expert staff saw it, to say that Pegasus holds a hammer over Western Canadian crude oil producers and shippers," the appeals court said in a 13-page opinion.
The appeals court vacated FERC's order and remanded the matter back to the agency.
A representative for FERC declined to comment because it was a pending case. The agency could appeal the ruling to the U.S. Supreme Court. ExxonMobil said it was pleased with the ruling.
"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," the company said.
ExxonMobil shares closed up $1.44, or 1.7 percent, at $85.45 in regular trading on the New York Stock Exchange.
The case is Mobil Pipe Line Co v FERC et al, in the U.S. Court of Appeals for the District of Columbia Circuit, No. 11-1021.