(Reuters) -The U.S. Federal Energy Regulatory Commission (FERC) on Monday rejected a Colonial Pipeline proposal to change the way it delivers gasoline from the Gulf Coast to consumers in the Northeast, noting the company failed to show the proposal was just and reasonable.

Colonial in March filed a tariff update seeking regulatory approval to end overlapping shipments of different gasoline grades, while also ending shipments of so-called "Grade 5" gasoline sold in some Northeastern states during the winter. The company also wanted to modify delivery specifications.

A group of Colonial shippers, including oil majors Exxon Mobil ( XOM ) and BP, had protested the changes, arguing they would harm their businesses by shifting blending margins away from them to Colonial. Shippers had also argued the changes would harm consumers by raising fuel prices at the pumps.

"We reject the tariff because we find that Colonial failed to meet its burden of proof demonstrating that its proposals are just and reasonable," the regulator said in a filing.

The commission found the plan would degrade gasoline quality without compensating shippers, impose extra costs, and give Colonial's affiliate an undue advantage, while offering no substantiated operational benefits.

"Colonial is reviewing the FERC's ruling that was issued this evening related to proposed changes to product specifications," the company said in an email to Reuters.

(Reporting by Ashitha Shivaprasad in Bengaluru and Shariq Khan in New York; Editing by Jacqueline Wong and Lincoln Feast.)