CALIFORNIA REFINERS' RFG WORRIES COMPOUNDED BY DUAL RULES

California refiners, faced with two sets of reformulated gasoline (RFG) regulations in upcoming years, are worried the U.S. Environmental Protection Agency's new RFG requirements could intensify the state's already complicated compliance challenges.

In addition to the EPA regulations, refiners in California must meet more stringent state RFG requirements. Phase II of the state specifications, administered by California Air Resources Board (CARB), takes effect in 1996 for large refiners and phases in thereafter for smaller refiners.

TROUBLE AHEAD

California refiners are well on the way toward meeting the state's more ambitious specs. However, a combination of problems with federal and state requirements could potentially trigger upheavals similar to those that occurred when new clean diesel rules took effect last fall, some officials say. The new diesel specs spurred fuel shortages and rapidly rising prices.

One problem with the EPA's rule is that the agency makes it "more difficult than necessary" to get gasoline into the distribution system, said Robert Trunek, senior vice president for manufacturing, engineering, and technology for ARCO Products Co.

"The failure by regulators to properly address the oil industry's complex distribution system was a prime cause of the problems experienced by the state during implementation of new specifications for diesel fuel in October 1993," said Jim Gigoux, executive director of California Independent Oil Marketers' Association (Cioma).

EPA's rule will frustrate distribution because of limitations on the commingling of gasoline, Trunek said. Under the EPA rule, refiners must use the so called complex model by 1998 (OGJ, Jan. 17, p. 16). They can opt to use the complex model beforehand but cannot commingle these supplies with those produced under the simple model. However, EPA complicated matters by linking the complex model to an antidumping provision in the rules, Trunek added.

EPA foresaw that refiners could take polluting components out of a cleaner gasoline and move them into another part of the gasoline stream for sale in a part of the country where reformulation isn't required.

In an effort to prevent gasoline from becoming "dirtier" in regions not covered by the specs, EPA has ruled that once a refiner produces gasoline under the complex model, the remainder of its gasoline can be no more polluting than what was previously sold. By tying this antidumping provision to the complex model, Trunek maintains that it effectively snarls the use of this model "as a practical matter."

Trunek pointed out that refiners don't have to wilfully move pollutants to other parts of the gasoline stream to be in violation of the rule. Merely changing the crude slate could result in a gasoline that is not as clean as what was sold before.

"The basic concept is a good one," Trunek said of EPA's anti-dumping rule. "However, Eke so many other regulations, bureaucracy got the better of it."

RELAXING REGULATIONS

Still another problem could occur strictly within California, because of pressure regulators are under to relax existing regulations. In the energy arena, the pressure stems directly from the state's experience with new specifications for cleaner burning diesel that took effect Oct. 1, 1993.

As cleaner diesel came into the California market, prices jumped by as much as 30/gal, and diesel was difficult to obtain. In addition, truckers started buying dirtier diesel outside state lines to avoid California's high prices. And many reported engine problems linked with the new diesel. Cioma's Gigoux noted this completely defeated the purpose of having the cleaner diesel by eroding the environmental benefits.

The price spikes and shortages of diesel fuel last fag caused such hardship for the state's agriculture industry and other major diesel users, including school buses, that Gov. Pete Wilson took emergency executive action to lift regulations to temporarily ease the regulations after they were issued. Under Wilson's direction, a state task force is now studying how to prevent a recurrence of these types of problems when the state's RFG regulations take effect in 1996. Wilson's task force will also rule on whether adversely affected parties should be refunded from the proceeds of a state diesel fuel fund and the extent to which cleaner diesel fuel is actually causing engine troubles. The task force study is to be finished by Feb. 19.

Regulators are under pressure to relax rules for other reasons as well. California's continuing economic stagnation and the exodus of businesses to adjacent states with less burdensome pollution controls prompted a rash of measures last year to roll back the power of certain regulators, notably the South Coast Air Quality Management District (Scaqmd). In response to this pressure, Scaqmd is now starting a host of actions for more business friendly regulation. The district's Reclaim rule, which lets some 400 large firms determine how they will meet pollution control targets, is one. Refiners were a prime beneficiary of this rule, adopted last fall (OGJ, Oct. 25, 1993, p. 35).

If Wilson's task force report is harshly critical of CARB, the same deregulation sentiment could travel to the state's capitol, where CARB is headquartered. CARB might then come under pressure to adjust its RFG regulations after adoption but before the 1996 effective date.

However, this won't necessarily be good for refiners who have already invested billions of dollars to start construction on refinery modifications that are needed to produce Phase II RFG. "There's a great deal of uncertainty how firm they are," Trunek said of CARB's Phase II specs. He noted it makes it very difficult for refiners to plan capital spending.

ARCO was furious last year when CARB issued waivers to refiners that hadn't finished their refinery modifications when the new diesel specs took effect (OGJ, Jan. 17, p. 28). This sort of thing isn't fair to refiners that scramble to finish their work on time, Trunek noted. CARB was forced to allow some refiners to sell noncomplying diesel in order to ease supply shortfalls last October. The exempted refiners must gradually ramp up the amount of complying diesel they manufacture, but all won't be in full compliance until June 1994.