A federal appeals court Tuesday vacated a FERC order that allowed MoGas Pipeline LLC -- an interstate pipeline system that was created in 2007 as a result of the consolidation of three pipe affiliates -- to include "acquisition premium" costs in the pipeline's initial rates.

The Missouri Public Service Commission (MoPSC) challenged the initial rates of MoGas Pipeline. It claimed that the proposed rates passed on to consumers contained certain acquisition premium costs related to asset purchases by Missouri Interstate Gas LLC (MIG) as well as acquisition premiums associated with Missouri Gas Co. LLC (MGC) and Missouri Pipeline Co. (MPC) -- the three affiliate pipelines that combined to form MoGas Pipeline.

"In its petition for review before this court, MoPSC argues that FERC's decision regarding the inclusion of acquisition premium costs in MoGas's initial rates is arbitrary and capricious. We agree. FERC's action is plainly inconsistent with its own precedent," said the U.S. Court of Appeals for the District of Columbia Circuit.

"Because the agency's decision is the antithesis of 'reasoned decision-making,' we grant the petition for review, vacate FERC's order with respect to the alleged acquisition premium issue regarding MIG, and remand the case for prompt resolution of the question of the alleged acquisition premium," wrote Judge Harry T. Edwards, who filed the opinion for the court.

In April 2007 FERC gave the green light to the three pipeline affiliates -- a small interstate and two intrastates -- to combine their facilities to form one new interstate system to better serve the Missouri and Illinois gas markets (see Daily GPI, April 20, 2007). MIG, MGC and MPC created a 263-mile, up to 16-inch diameter interstate system delivering gas to the two Midwest states.

All three pipelines are based in St. Peters, MO, and are wholly owned subsidiaries of United Pipeline Systems LLC.

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