Opinion ID: 184925
Heading Depth: 3
Heading Rank: 2

Heading: Costs of Sulfur Removal

Text: 39 Tesoro argues that internal inconsistencies in the Nine Party data show that the processing costs for sulfur removal are not credible, specifically because there is a higher perunit cost to remove sulfur from heavy distillate than from resid. Tesoro presented evidence challenging these calculations, which the ALJ and FERC failed to fully address. 40 FERC responds that Tesoro's argument that there are inconsistencies in O'Brien's cost calculations for sulfur removal was never raised before the Commission, and cannot be raised now before the court. If the issue was preserved, the agency argues that Tesoro has produced no evidence showing that the calculations are incorrect, and that the agency could reasonably have adopted O'Brien's calculations. 41 We hold that Tesoro preserved this issue for review when it argued before the Commission that there was no way, absent discovery, to determine that O'Brien's cost estimates are not totally arbitrary and that the conflicting testimony of its experts supported a lower cost per unit for removing sulfur. Motion of Tesoro Alaska Petroleum Company for Expedited Reconsideration and Remand or to Permit Appeal Concerning Certification of Nine Party Settlement WW 36-37 (Oct. 15, 1997). As for the merits of the issue, we hold that FERC reasonably relied on the testimony of Nine Party witness O'Brien in reaching the adjustment. Witness O'Brien testified that different methods would be needed to bring the two products into compliance. Heavy distillate could be blended with a lighter product to bring it into compliance with the 0.5% market tolerances for sulfur in West Coast Waterborne Gas oil, the reference product on the West Coast. However, such blending would not be economically feasible to bring it down to the 0.2% sulfur content of Gulf Coast No. 2 fuel oil, the Gulf Coast reference product, so it would have to be processed to remove the excess sulfur. See 1997 Opinion, 80 FERC p 63,015, at 65,234; O'Brien Affidavit WW 13-15.This difference in approach accounts for the difference in cost. Thus, there is no inconsistency warranting the relief Tesoro seeks.