CLEAN-FUEL MEASURES BLAMED IN GAS HIKES : BUT STATE REGULATORS RELUCTANT TO EASE RULES AIR RESOURCE PANELISTS RESIST CALLS TO SUSPEND REGULATIONS.

Byline: Mark Katches Daily News Sacramento Bureau

State regulators Thursday said California's cleaner fuel standards are partially responsible for soaring prices at the pump - adding up to 15 cents to the cost of a gallon of gasoline.

But members of the California Air Resources Board, at a packed hearing in the Capitol, said they are hesitant to suspend the new environment-friendly regulations to help ease a gas crisis in California.

``That would be a last resort for us,'' said Air Resources Board Chairman John Dunlap. ``It's not something we want to do right off the bat. It's the single largest measure in our clean air strategy over the next 15 years. We need this measure to get to clean air.''

Oil company executives testifying before the 11-member board said they believe market forces will eventually bring the prices back down, but they stopped short of predicting when that might occur.

The cleaner fuel was introduced March 1. The state is mandating that it make up 100 percent of the supply in California by June 1.

Air Resources Board Chairman Dunlap said several months ago that he worried that the industry would try to use the new standards as an excuse to gouge customers.

``We will not sit idly and have people make this new control strategy a scapegoat for higher fuel prices,'' Dunlap told reporters during a break in the hearing.

Other board members seemed swayed by the testimony, even though many questions - particularly when the crisis might end - remained unanswered.

``We're a long way from being able to explain this,'' said Ron Roberts, a board member from San Diego. ``But it appears from this that the reformulated gas is not the culprit.''

The board scheduled the hearing to try to get a handle on the factors leading to the rise in prices and was not considering a recommendation to take any action.

In an odd alliance, industry executives joined with environmental groups urging that the state board withhold any drastic measures to change its policies on cleaner burning fuel.

Oil industry leaders are especially concerned about scaling back the plans now since they have spent about $5 billion to modernize their refineries to make the new fuel.

``The more prudent course of action for the board to take would be to allow the marketplace to adjust to the normal supply and demand forces,'' said Ronald Kiracofe, Atlantic Richfield Co.'s senior vice president of manufacturing, engineering and technology.

Even when crude prices eventually stabilize, however, Californians will still likely be paying more at the pump because of the cleaner fuel.

``The one thing good that's come out of the price increases is cleaner air, and it's only costing us about a dime,'' asserted Air Resources Board spokesman Daven Oswalt.

The new fuel is so much cleaner it takes the equivalent of 3.5 million vehicles off state roads and highways. It cuts smog-forming compounds by about 15 percent and is expected to reduce the risk of cancer from exposure to toxics in gasoline by up to 40 percent, according to Air Resources Board staff.

Just how much the new fuel is costing is open to debate. Air Resources Board officials say it adds between 5 to 15 cents to the costs of a gallon of gas depending on the brand, with the average cost being about 10 cents a gallon.

California Energy Commission Chairman Charles Imbrecht testified that he believes the costs are much lower.

``Our view is five to eight cents is the maximum range,'' Imbrecht said. ``And frankly, we have looked at some data that suggests it's closer to six or seven (cents).''

If cleaner gas has added even 10 cents a gallon to the price, other market forces are at work, experts said.

Average retail prices for unleaded regular have risen 28 percent across the state from $1.15 in January to $1.47 this week. Prices can vary widely, however. Some full-service stations are charging over $2 a gallon for premium.

Imbrecht told the board that the gas price hikes have exceeded the costs that followed the Exxon Valdez spill in March 1989 and the Iraqi invasion of Kuwait in August 1990.

He said his staff has been tracking the factors leading to the increase for several months and can find no significant shortage of supply, despite a number of problems refineries across the state have been incurring lately that resulted in slowed production.

Imbrecht said refineries in California now are churning out about 846,000 barrels a day to meet a demand statewide of about 864,000 barrels of crude.

``The refineries that are operating are literally operating with the pedal to the metal,'' Imbrecht said.

But the cost of crude has taken off, in part because of market uncertainty over the outcome of negotiations between Iraq and the United Nations that would allow the country to resume selling oil on the world market.

Other factors include a high demand for heating oil in eastern states and a big diesel demand for agricultural purposes, Imbrecht said.

Oil companies initially tried to pin the rising prices on the new cleaner burning fuel that was approved by the Air Resources Board five years ago to improve the state's pollution index - the nation's worst.

Earlier this month, Arco officials attributed a one-day 9-cent hike solely to the newly reformulated gasoline, but later retracted those statements.

Arco's Kiracofe acknowledged that the new cleaner fuel is only one of several factors leading to the increase.

Although many of the factors leading to higher gas prices have been attributed to national and international developments, the state's prices remain about 25 cents higher than neighboring states, experts said.

A combination of the state's sales tax, the cleaner burning fuel and a higher profit margin for refineries account for most of the difference, Imbrecht said. He noted that most neighboring states do not charge a sales tax on gasoline or require the cleaner gas.

Trilby Lundberg, who publishes the Lundberg Letter tracking gas prices nationwide, said it is hard to say when gas prices will ease, but that they depend almost exclusively on the prices of crude oil which jumped $6 a barrel between February and early April.

``The crude oil price is the number one factor,'' she said. ``It's importance is not rivaled by any other factor.''