Between early January and late April, average statewide wholesale gasoline prices have increased 65 percent -- up from 62 cents per gallon to $1.03. Wholesale diesel prices spiraled up 44 percent -- rising from 68 cents to about 99 cents per gallon or higher in some locations.

Retail gasoline prices went up, on average, 33 percent during that same period -- from $1.15 a gallon to $1.53, and retail diesel prices are up 23 percent, climbing from $1.33 to $1.63 per gallon.

What is especially troubling is there has been no obvious precipitating event to account for climbing prices. Californians are demanding to know: who is to blame?

Unfortunately, there is no one single answer. Instead, a number of factors are working in combination to cause these price increases.

First, the world price of crude oil has increased dramatically--- approximately $5 per barrel by mid-April. For every $1 increase in the price of crude oil, consumers can expect to pay about a 2.5 cents more per gallon for whole gasoline or diesel fuel. This fact explains 12.5 cents of the per gallon fuel price increase.

Oil price increases represent a daily loss of over $5.2 million per day from the California economy. Since California purchases about half its oil from Alaska and foreign sources, that much money goes to purchase oil from out-of-state markets at a $5 per barrel higher price.

Second, rising world and U. S. oil prices are further complicated by the delay in ongoing negotiations between the United Nations and Iraq. Unfortunately, by conducting these negotiations openly, the U.N. has fueled market speculation in anticipation of the addition of up to 700,000 barrels of Iraqi oil into the world market.

Third, unusually cold weather conditions in the Eastern U. S. and in Europe caused abnormal demand for heating oil. Refineries shifted production to heating oil and away from other light end petroleum products such as gasoline and diesel fuels.

California has experienced an early surge in agricultural fuel needed for spring planting. This has further increased demand and restricted supplies of diesel. Every spring, the demand for diesel fuel jumps as much as 30 percent when farmers take to the fields to plow and plant. An even more predictable but contributing factor is the arrival of the peak driving season.

Next, a number of California refineries experienced unexpected and unscheduled operational problems.

Reported fires at the Shell refinery in Martinez in Northern California reduced its gasoline production for the better part of April. ARCO's refinery at Carson in southern California experienced problems with its diesel production unit in mid-March. Since February, partial outages at other refineries in the state tightened the supplies of gasoline and diesel.

The introduction of clean-burning Phase 2 reformulated gasoline also affected the price at the pump. The production cost increase for reformulated gasoline should be, at most, 5 to 8 cents a gallon. The switch to reformulated gasoline mandated by the federal Enviromental Protection Agency is one of the less significant reasons that prices have increased.

Imagine the drop in air pollution if overnight 3.5 million vehicles were removed from California's roads and highways. The switch to cleaner-buring gasoline will have a comparable effect the California Air Resources Board caluculates. Phase 2 gasoline is a critical element of the state's overall strategy to meet federal and state clean air requirements.

Oil companies invested an estimated $4 to 4.5 billion to modernize their refineries and to produce reformulated gasoline. Wholesale and retail fuel prices reflect these added capital costs.

By June 1, all gasoline sold in California must be clean burning gasoline, which most state refineries began producing and shipping in February. Odds are that you're already using the new fuel.

Because sales tax is based on the higher retail fuel prices, state sales taxes also have added about 2.8 cents to the price of a gallon of gasoline. Federal excise taxes are fixed at 18.3 cents per gallon; California's State Motor Vehicle Fuel License tax adds another 18 cents. Sales tax -- which varies by county from 7.25 to 8.25 cents per gallon -- is added on top of the retail price which includes these fixed excise taxes.

This "tax on a tax" could generate an estimated windfall of over $61 million per quarter for the State Treasury and for local governments if these higher fuel prices are sustained. Annual revenue gains from these higher state sales taxes can be conservatively estimated to be $240 to $280 million, and could be as high as $400 to $500 million.

Taxes, higher crude oil prices, the cost of oxygenates and the added cost of producing Phase 2 gasoline help to explain climbing fuel prices. About 20 cents of the increase, however, are not yet accounted for. The refiner's margin has more than doubled in the first part of 1996. Some of the increase can be attributed to competitive pricing as a result of a supply and demand imbalance.

Current higher petroleum product prices reinforce the California Energy Commission's resolve to pursue fuel diversity in the transportation sector. Today, only a few percent of California's cars, trucks and buses are powered by clean, alternative fuels.

Unfortunately, the marketplace for transportation fuels in California is not truly open to competition. Almost 99 percent of transportation is fueled by petroleum. Without alternatives to petroleum-fuels, motorists must choose to either drive less, rely on public transit or pay the higher fuel price.

The Energy Commission has successfully fought for diversification of energy sources throughout our state. That's why California's electrical generation system is the most diverse in the world. Today, nearly 20 percent of our electricity comes from renewable sources -- hydroelectric, solar, geothermal, biomass and wind generation.

Now is not the time to abandon our efforts to diversify our transportation fuel market. We should continue to pursue electric vehicles as well as vehicles fueled by compressed natural gas, methanol and ethanol. After all, it was competition from methanol, in the form M-85, during the 1980s that spurred the development of reformulated gasoline and diesel fuels.

What will happen to prices in the immediate future? Right now, supplies of gasoline and diesel fuels in California are tight but adequate, and the supply and demand picture is improving. As refinery outages are corrected, scheduled imports reach their destinations within California, and crude oil prices normalize, we should see downward pressure on motor vehicle fuel prices if no additional outages occur.

Predicting exactly when prices will decline is difficult. Since mid-April, posted oil prices have declined, although the price of oil futures remains volatile. As supply conditions continue to improve and the seasonal high demand for gasoline and diesel abates over the next few weeks, California consumers should see discounts at the pump.

In addition, a successful outcome of U.N./Iraqi negotiations and other factors affecting world oil market conditions could have a positive effect on prices. We at the Energy Commission will remain vigilant and continue our intensive investigation into current fuel market conditions.