Harry McDonald, president of Carlile Transportation Systems, says an industry rule-of-thumb is that 50 cents added to the cost of a gallon of fuel raises freight rates by 10 percent.

Also, 50 cents per gallon added to the cost of fuel for the approximate 16 million gallons shipped to western Alaska utilities will add $8 million per year to the cost of generating power in those communities.

There are many estimates for what the new fuel will cost, but the real costs for Alaska will be the special handling and separate tanks needed for storage, according to Ron King, an Alaska Dept. of Environmental Conservation official who is monitoring implementation of the new fuel requirement.

The new fuel must have no more than 15 parts-per-million sulphur content so that pollution control systems on new engines being made will not be damaged, King said. Diesel now in use has 500 parts-per-million sulphur content or higher.

Outside of Southeast Alaska and Kodiak, Alaskans who use diesel will also need a special "Arctic" blend of diesel that doesn't jell at low temperatures, King said.

Fifty cents a gallon is about what McDonald thinks it would cost his company if it had to truck its own fuel from Edmonton, Alberta refineries which will make the "Arctic" grade of ultra-low sulfur fuel. It's unlikely the fuel will be available from Alaska refineries, or even refineries on the U.S. west coast.

Truckers, fuel distributors and utilities now buy their fuel from Alaska refiners. But Tesoro Alaska Petroleum Co., Williams Alaska Petroleum Co. and PetroStar, Inc., which operate refineries near Fairbanks and Kenai, say they may not be able to afford the capital investment needed to make the ultra-low sulfur diesel.

Refineries on the U.S. west coast will be making ultra-low sulphur diesel but not the special Arctic blend that stays liquid at cold temperatures. These refiners could do a special run of Arctic-grade diesel, but this could create prohibitive costs and logistics problems, according to Frank Dillon, executive director of the Alaska Trucking Association.

"If a refiner did a special run, we would essentially have to have a string of barges standing by to take on the fuel. Then we'd have to store it somewhere," Dillon said.

Buying the fuel from the Alberta refineries and shipping to Alaska as it is needed is probably the practical alternative, according to King.

"The Alberta refiners will make the fuel for Canadian markets. They're on the same track of moving to low-sulphur fuel as we are," he said. "They said they'd be happy to sell it to us, at a price of course."

If there's enough volume involved, shipping by rail to Vancouver, B.C. and by barge to Anchorage might be less costly than trucking up the Alaska Highway, King said.

For now the new fuel requirement applies to diesel used on highways, in trucks and buses. But the EPA is now extending the requirement to off-road mobile diesel engines, such as in heavy equipment used in construction or portable generators, King said. Those regulations will probably be in place by 2007 or 2008, he said.

What is likely to follow is an EPA regulation covering stationary diesel engines, such as those used in power generation, King said.

From a practical point of view, power plant operators in many small Alaska communities will be affected at the same time truckers are, according to Meera Kohler, president of Alaska Village Electric Cooperative.

That's because the engines in village power plants are essentially truck engines, she said. After 2005 engine manufacturers will only be making engines that need the ultra-low sulphur fuel.

As rural utilities replace engines in village power plants they will need the new fuel no matter what the EPA does, Kohler said.

The formidable problem faced by Kohler and other rural utility managers is getting the fuel to the communities. Kohler said she has heard cost estimates for the new fuel ranging from 10 cents to $1 in added costs, but her best guess now is that it will add 25 cents per gallon to AVEC's fuel costs, which averaged $1.50 per gallon last year.

Fuel is now delivered in two ways to rural Alaska. Yukon Fuel Co. ships fuel by barge to villages along the Yukon River from Nenana, which is on the Alaska Railroad, according to Shane Tarter, vice president of petroleum and freight services for Yukon Fuel. The company also ships fuel by barge from Anchorage to Bethel, Bristol Bay and points west, Tarter said.

If the company has to get the special Arctic blend of ultra-low sulfur fuel from Edmonton refineries instead of the Tesoro refinery near Kenai, its current supplier, it would add more transportation costs even before the costs of shipping from Nenana or Cook Inlet are added, he said.

What's even more of a challenge, however, is the special handling and segregated tanks needed for the fuel. "It's very sensitive to contamination and this could create a large problem for us," Tarter said.

Tanks carrying the fuel would either have to be dedicated to that fuel or washed carefully if a different fuel is carried, he said. Barges now serving rural communities typically have only a few separate tanks that allow different fuel products to be carried.

If there is enough volume a solution will be found, but if only small qualities of the fuel is needed the separate storage will add costs.

Yukon Fuels also faces a different problem than that faced by utilities like AVEC, Tarter said. The utilities have their own separate tanks which, once cleaned, can be kept clean to store the new fuel. Yukon Fuels, like other fuel distributors in the region, operates large bulk storage tanks where diesel for all uses is stored. The company operates a bulk fuel storage facility in Bethel capable of holding 10 million gallons, he said.

If all diesel users in the region are using the fuel, the large tanks can be cleaned and used. This won't be the case if there are just a few using the fuel, however.

Transportation may be the largest cost, but King said the EPA estimates that refiners in the Lower 48 states should be able to manufacture the new fuel for five cents per gallon more than it costs to make diesel now being sold.

A ConocoPhillips Inc. refinery near Bellingham, Wash. that is making 15 parts-per-million diesel in a test program for school bus fleets in the Seattle area told King their costs are now running 7 cents per gallon more than conventional diesel, and that if larger volumes are made the cost can be lowered.

However, the Alberta refineries who make Arctic-grade diesel could charge more than that, King said.

The EPA established the regulations requiring engines that need the new fuel after an extensive national research program found that sulphur from diesel fuel is a major contributor to air pollution and health problems in major cities. Because the regulation apply to engines rather than the use of fuel, there's no way Alaska can be exempted from the rule, King said.

Currently the EPA has a national rule requiring use of diesel with 500 parts-per-million sulphur from which Alaska is exempted, King said.

"Diesel with 500 ppm sulphur is actually used in many parts of Alaska, like Southeast, because the fuel is purchased from Seattle, where it is the only diesel available," King said.

However, because the new regulation is linked to engines, which will be in Alaska when new trucks and buses are purchased, the fuel will be needed in Alaska.